The Chicago Freedom Movement and the fight for fair lending

Dr. King Legacy Apartments

Photo by Stacey Rupolo

The Dr. King Legacy Apartments are located on the site of the North Lawndale tenement where Martin Luther King Jr. lived during the Union to End Slums campaign in 1966.

(Editor’s note: This year marks the 50th anniversary of the Chicago Freedom Movement, an open housing and racial justice campaign that brought the Southern civil rights movement to Chicago, where the Rev. Martin Luther King Jr. lived for a time in a tenement in North Lawndale. Through the eyes of scholars and participants, “The Chicago Freedom Movement: Martin Luther King Jr. and Civil Rights Activism in the North” explores a historic campaign that some people have dismissed as a political failure, and argues that the efforts had a lasting impact in the city and the nation. Here is an excerpt from the book, which will be published in April. )

On a brisk fall morning in 1965, John McKnight, Midwest Director of the U.S. Commission on Civil Rights, made a presentation in the basement of the Warren Avenue Congregational Church on Chicago’s West Side on the systematic discrimination in lending that prevented African American home buyers from getting mortgages. He was speaking to a group of about eighty people, most of them young, and many of them new to Chicago. They were members of the Wider Community Staff, which included Martin Luther King Jr.’s Chicago staff and various collaborating Chicago organizations: the American Friends Service Committee, West Side Christian Parish, West Side Organization, West Side Federation, and JOIN Community Union from the Uptown neighborhood, among others.

I was there, having arrived in Chicago a few months earlier after graduating from Stanford University. I had become passionately interested in the civil rights movement while in college. Many of my fellow students had gone to Mississippi to participate in the 1964 Freedom Summer, and I had listened as theology professor Robert Mcafee Brown described his participation in the Freedom Rides and lectured on social gospel Christianity. Determined to join this work, I had gone to Chicago as a West Side Christian Parish volunteer, at the urging of another volunteer I knew through the Methodist Church. The parish assigned me to be the secretary for James Bevel, who had just arrived from the South. I had grown up in Port Angeles, Washington, a small town near Seattle, and I knew I had much to learn.

John McKnight launched into a discussion of mortgage lending discrimination and its dire consequences, a practice affecting all of Chicago’s black neighborhoods. He clarified for us how this complex process worked: Chicago financial institutions designated some neighborhoods as unworthy of loans based on their racial composition—that is, they were “redlined,” or excluded from the regular mortgage lending process, by the banks and the Federal Housing Administration (FHA). Furthermore, neighborhoods adjacent to black communities were designated “gray areas,” where loans would not be made to either black or white prospective homeowners.

This left the area ripe for blockbusters, or panic peddlers, as they were also called. Blockbusters—real estate agents and their erstwhile investors (sometimes the agents themselves)—would show up when they were ready to “turn the neighborhood” from white to black by selling one house to a black family and then convincing frightened white homeowners to sell to the blockbusters at rock-bottom prices, warning them that property values were about to fall dramatically. The panic peddlers then sold these houses to black families at an exorbitant profit— sometimes double the price they had paid the white families.

Black homebuyers obtained financing through contracts with the panic peddlers, an arrangement that offered them few protections. Under this arrangement, a buyer had no equity in the house until the contract was at least half paid off, which might take fifteen years. African American families agreed to these ruthless practices because it was the only way they could purchase homes; they could not obtain regular mortgages through traditional lending institutions. Even after the neighborhood had been “turned” into an African American community, no regular mortgages were available.

If financially strapped African American families missed a payment or made a late payment, then their homes would immediately be repossessed and resold, resulting in more profit for the panic peddlers. Alternatively, the contract owners (sometimes the panic peddlers themselves, and sometimes others to whom they had sold the contracts) would tack large fees onto the mortgage payments—perhaps $1,500 for some unforeseen purpose—declare the fees due immediately, and then repossess the home when the homeowner could not pay. The house would then be sold again, and the whole process would be repeated.

This exploitative system frustrated families’ efforts to own homes in these West Side neighborhoods full of tree-lined streets and many old graystone two-flat and three- flat buildings that could easily accommodate a family and a renter or two.

This was a story I never forgot. It was a rude awakening for me. I began to see that this was a systemic process involving not just a few greedy slumlords or real estate agents but the major financial institutions in the city, conspiring to deprive African Americans of the dream of owning a home and building a more secure financial future.

Later, we learned that the FHA played a key role in this process of denying African Americans homeownership. FHA underwriting manuals from the late 1930s specified that “if a neighborhood is to retain stability it is necessary that properties shall continue to be occupied by the same social and racial classes.” Lending institutions and appraisers adopted these guidelines and made their decisions accordingly.

Initially, Dr. King’s West Side staff had settled in to organize tenant unions. Within weeks, this effort evolved into the Union to End Slums, as we began to see the interconnection between poverty and poor housing, poor-quality food in the stores, lack of employment, and more. We sought a bigger frame that would address the systemic nature of these problems. John McKnight had helped outline that system for us, and we continued to develop it as we learned more and more. We called this system a form of internal colonialism, paralleling the European colonization of much of Africa, for example.

In the late 1950s, while working for the Chicago Commission on Human Relations, McKnight had heard West Side attorney Mark Satter describe the contract buying system. “I was really stunned by what he was talking about,” McKnight said in a 2012 interview. “I thought of this contract buying issue as a civil rights issue as it manifested at the neighborhood level.”

For a long time McKnight was unable to get anyone interested in taking up the issue: “The average civil rights person didn’t know much about mortgages, land transfer, contracts, articles of agreement … it was pretty complex,” he said. When McKnight returned to Chicago in the mid-1960s, he again tried to interest community activists in the contract buying issue: “I specifically remember talking with Jim Bevel. I had a little game I developed, cards and things to show people in my office how it worked. Bevel was very taken by the whole thing. He really understood it, and said he was going to present it to Dr. King.”

In the end, Dr. King and his executive staff decided to focus on tenant unions instead. Bevel told McKnight that they wanted to prioritize their organizing efforts on the poorest: renters, not homeowners. However, Bevel and the other movement leaders did not forget about the exploitative system of contract buying. Months later, as the Chicago Freedom Movement was preparing for a summer direct action campaign, leaders of the coalition began to concentrate on the myriad problems that created slums. They gathered at the Catholic Interracial Council in downtown Chicago to develop a list of demands for the summer campaign. The centerpiece was to be their declaration that Chicago would be an “open city,” with open housing, open employment opportunities, changes in the welfare system, and an end to many other forms of discrimination. McKnight was at that meeting and recalls: “Everybody had been invited to come up with demands. I can still picture it: they were sort of pasted up all over the walls.” He made sure that ending discrimination in mortgage lending was on that list, and there was wide agreement.

On July 10, 1966, immediately after the rally of more than 30,000 Chicagoans at Soldier Field, Martin Luther King Jr. led thousands of marchers to City Hall, where he posted those demands on the door. The demands related to banks and savings institutions called for the following:

  • Public statements of a nondiscriminatory mortgage policy so that loans will be available to any qualified borrower without regard to the racial composition of the area, or the age of the area, a policy that takes into account years of discrimination against Negro borrowers.
  • Creation of special loan funds for the conversion of contract housing purchases to standard mortgages.

The direct action campaign that began shortly after the July 10 rally targeted discriminatory practices in real estate offices. But we understood that lending institutions played a key role as well. On August 16 we picketed one of the major financial institutions in downtown Chicago: First Federal Savings and Loan—for us, a symbol of the industry. We demanded that it halt discriminatory mortgage lending practices. (The same day we also picketed the Board of Realtors, the Department of Public Aid, City Hall, and the Chicago Housing Authority, again to illustrate the widespread responsibility for housing discrimination.

The Summit negotiations began the following day, and on August 26, when the Summit agreement was announced, it included the following commitments related to nondiscriminatory lending:

  • The Cook County Council of Insured Savings Associations, by letter, and the Chicago Mortgage Bankers Association, at the Committee meeting of August 17, 1966, have affirmed their policy is to provide equal service to and to lend mortgage money to all qualified families, without regard to race, for the purchase of housing anywhere in the metropolitan area.
  • Assistant Attorney General Roger Wilkins, head of the Community Relations Service of the United States Department of Justice, has advised the chairman of the subcommittee that the Service will inquire into the questions raised, under existing law, with respect to service by the Federal Deposit Insurance Corporation and the Federal Savings and Loan Insurance Corporation to financial institutions found guilty of practicing racial discrimination in the provision of financial service to the public. While the matter is a complex one, it will be diligently pursued.

The Summit agreement put this issue on the public agenda and called to account financial institutions responsible for discrimination. Institutional practices did not change overnight, as I might have expected back then, when I was in my twenties. But changes did come—very slowly. First, in July 1967 the FHA issued directives to the effect that buildings in “riot or riot-torn areas” were “acceptable risks” for lenders. Although the FHA linked this change to ghetto riots, it occurred less than a year after the open-housing marches and the Summit agreement had put fair-housing issues on the national agenda.

The Chicago Freedom Movement’s work may well have played a significant role in generating public concern for these housing issues. Riots were often provoked by incidents of police brutality or other confrontations with the authorities, and it seems unlikely that lack of mortgage availability would have been high on the list of provocations. A law professor later reported, “in the midst of the mid-1960s urban riots, the newly-created HUD forced the FHA to relax its insurance underwriting standards in order to insure mortgages in high-risk inner city neighborhoods.”

Finally, in April 1968, Congress passed the Fair Housing Act, Title VIII of the Civil Rights Act of 1968. One of its provisions prohibited “discrimination in the financing of housing,” setting the first legal framework against discrimination in lending. Gregory Squires notes that “subsequent court decisions have added discriminatory appraisal practices (United States v. American Institute of Real Estate Appraisers), discriminatory land use and zoning practices (United States v. City of Parma) and refusal to make home loans available or to make them available on terms less favorable than in other areas due to the racial composition of the neighborhood (Laufman v. Oakley Building and Loan Company) to the list of prohibited acts.”

In the months and years following the August 1966 Summit agreement, nationally significant campaigns against lending discrimination emerged from West Side Chicago neighborhoods. In 1968 the Contract Buyers League (CBL) was founded in North Lawndale (the neighborhood where King had lived in a slum apartment), seeking relief for black homeowners caught in the infamous contract schemes. Also in 1968, Gale Cincotta and her neighbors launched the anti-redlining movement, fighting financial institutions’ discrimination against their community from their homes in Austin, just west of the Garfield Park neighborhood where King’s staff had been organizing. In 1972 Cincotta realized that a national anti-redlining movement was necessary, so she founded National People’s Action, which grew into a vigorous force during the late 1970s and the 1980s.

Later, I found myself intrigued by the fact that both the Contract Buyers League and the anti-redlining movement had emerged in close proximity to where Dr. King had been living and his staff had been organizing just a year or two earlier. Could there be a connection? Others didn’t seem to see a link, but I wondered. As I began this research, I looked for some connection, unwilling to believe that it was only a coincidence.

Next Monday: The Contract Buyers League