In the 1930s through the 1960s, most African-Americans could not get mortgages. This was because the U.S. government deemed neighborhoods where they lived ineligible for federal mortgage insurance, which was the Depression-era innovation that made mortgages widely affordable. As a result, hucksters moved in and peddled homeownership through contracts for deed, where the home seller gives the buyer a high-interest loan and a pledge to turn over the deed after 20 to 40 years of monthly installment payments. These contracts built no equity and usually resulted in default and eviction.
If you thought similar types of schemes were over in the mortgage industry, read Stevenson and Goldstein’s April 17th article.
1. Explain why contract for deeds are making a comeback.
2. What Dallas company was mentioned in the article as being the largest player in this contract scheme?
3. Unlike mortgage foreclosure, what do the contracts typically lack?
4. In the example in the article, what percentage interest was being charged? How does that compare to the current mortgage interest rate? Based on this, how much additional interest will be charged per $1,000 over 20 years?
The Editorial Board. (2016). The Racist Roots of a Way to Sell Homes. The New York Times, April 29 (Retrievable online at http://www.nytimes.com/2016/04/29/opinion/the-racist-roots-of-a-way-to-sell-homes.html).
Stevenson, A. and M. Goldstein (2016). Wall Street Veterans Bet on Low-Income Home Buyers. The New York Times, April 17 (Retrievable online at http://www.nytimes.com/2016/04/18/business/dealbook/wall-street-veterans-bet-on-low-income-homebuyers.html).