Beginning in the 1930s, as part of President Franklin D. Roosevelt's New Deal, the Federal Housing Administration (FHA) created loan programs that lowered down payment requirements and extended the term of home loans from 5 to 30 years — all in an effort to make home ownership accessible to more Americans.  To help banks determine who should get home loans, the government-run Home Owners’ Loan Corporation established a system for appraising neighborhoods, now commonly referred to as "redlining."  Essentially, the United States government created color-coded maps, assigning green for "good" neighborhoods and red for "bad" neighborhoods (literally drawing red lines around what they considered "bad" neighborhoods, hence the name). 


Unsurprisingly, Black neighborhoods (pretty much across the board) were given both the color red and the worst grade (D), which classified them as "hazardous" places to underwrite mortgages because “colored infiltration is a definite adverse influence on neighborhood desirability.”  Read more here.  Naturally, without the ability to obtain conventional financing, these neighborhoods significantly declined as businesses left, segregation and discrimination deepened, and predatory lending and slumlords thrived. 


In large cities, Black Americans were now confined almost exclusively to the "inner city," where freeways soon bypassed them altogether.  Although smaller in scale, those in rural areas fared no better as they were now relegated to the "wrong" side of town, or tracks as it were.  The very few Black people who did obtain financing saw their property values plummet as White Americans refused to buy in what was now firmly considered "Black" neighborhoods.


Redlining was devastating for Black Americans.  Between 1934 and 1962, the federal government backed $120 billion of home loans.  MORE THAN 98% OF THE LOANS WENT TO WHITE PEOPLE.  

Because of this type of massive discrimination and unfair practice, most African Americans could not get conventional mortgages for decades.  This led to something called contracts for deed, where mostly shady people gave desperate buyers access to homeownership through a super high-interest loan.  The actual title to the home was given to the buyer only after the last payment was made.  In this seller-financed home transaction, the seller often evicted the buyer for no valid reason, which gave the buyer no equity and left him or her was at the complete "mercy" of the seller.  Then, the seller would simply enter into a contract with another soon-to-be victim.  

Contracts for deed are back.  In many ways it mirrors the subprime loan model that caused the 2007-2009 Financial Crisis that brought this country to the brink.  The National Consumer Law Center describes it this way:

"Land contracts are marketed as an alternative path to homeownership in credit-starved communities. The homebuyers entering into these transactions are disproportionately, like Ericka, people of color and living on limited income. Many are from immigrant communities.  These land contracts are built to fail, as sellers make more money by finding a way to cancel the contract so as to churn many successive would-be homeowners through the property.  Since sellers have an incentive to churn the properties, their interests are exactly opposite to those of the buyers. This is a significant difference from the mainstream home purchase market, where generally the buyer and the seller both have the incentive to see the transaction succeed."  


"Reliable data about the prevalence of land contract sales is not readily available. According to the U.S. Census, 3.5 million people were buying a home through a land contract in 2009, the last year for which such data is available.  But this number likely understates the prevalence of land contracts, as many contract buyers do not understand the nature of their transaction sufficiently to report it.  Evidence suggests that land contracts are making a resurgence in the wake of the foreclosure crisis.  An investigative report by the Star Tribune found that land contract sales in the Twin Cities had increased 50% from 2007 to 2013.  Recent reports from The New York Times and Bloomberg reveal growing interest from private equity-backed investors in using land contracts to turn a profit on the glut of foreclosed homes in blighted cities around the country."  Read the entire report here.



Daniel Aaronson, Daniel Hartley and Bhaskar Mazumder.  "The Effects of the 1930s HOLC “Redlining” Maps."  Federal Reserve Bank of Chicago.  3 Aug 2017 

Jeremiah Battle, Jr., Sarah Mancini, Margot Saunders, and Odette Williamson.  "Toxic Transactions:  How Land Installment Contracts Once Again
   Threaten Communities of Color."  National Consumer Law Center.  July 2016