Journalism
Speculators Make a Killing on FHA Program
New Kind of Profiteer
During this period the slumlord began to vanish – that faceless figure who owned scores of ghetto dwellings, jammed two, or three or more families into single-family houses and charged whatever rent the traffic would bear.
At the same time, under the new Federal mortgage programs, another, a more hardy breed of profiteer emerged – the real estate speculator.
And statistics indicate he is more active in Philadelphia than any other city in the country with the possible exception of Detroit.
The speculators customers are the same people who rented from his predecessor, the slumlord. They are largely black and Puerto Rican. They have never owned a house before. Most set out to rent – rather than buy – and ownership was urged on them, sometimes with disastrous results.
The new housing programs made it easy for speculators to buy rundown houses cheaply, make a few cosmetic repairs and sell them at sharply inflated prices with FHA insured mortgages.
The Problem Wasn't Solved
As for Congress' goal to bring home ownership to the poor and halt the growth of the ghetto, something clearly has gone awry.
The boundaries of Philadelphia's ghetto continue to expand, the houses continue to fall apart and many of the new owners are less than enchanted with home ownership.
Speculators and other businessmen who work with them – mortgage brokers, select insurance salesmen and itinerant home remodelers with marginal abilities in remodeling – are making millions of dollars out of the system.
There are, besides the poor people who end up with substandard houses, other losers. Taxpayers and other homeowners with FHA-insured mortgages are picking up at least part of the tab.
And as mortgage foreclosures and housing abandonment increases – a process attributable in part to speculators – the city pays the price in terms of a dwindling tax base and enlarged slums.
According to Sam Berry, a public relations officer in HUD's Philadelphia regional office, FHA has had a long-standing policy designed to alert the agency to speculative activity.
"Some of these guys," declared Berry, "buy those houses for $2,000 and they spend a lot of money.
Policy Not Enforced
"He's got to specify when he applies on an FHA program what he paid for it and what he invested in it. And then we evaluate it on the price. I'm sure it's been a long-standing policy."
However, the failure of FHA to enforce another long-standing policy – prohibiting the use of the term "FHA approved" in selling houses – was turned to full advantage by the speculators in convincing new buyers their homes were sound.
All those interviewed said they were told the houses were "FHA approved." All said they assumed this meant the government had inspected the houses and found no defects.
Said Mrs. Alma Murphy: "The house looked all right. My mother told me I wouldn't have to worry about the house if FHA approved it."
Said Mrs. Mildred Ann Baker: "He definitely told me it was FHA approved. I figured if it was FHA approved, it was all right. So I didn't bother to look too close."
Not so, says Gordon Hagen, an attorney in HUD's Office of General Counsel in Washington.
"The idea that a house has even got to be fit for occupancy is not necessary to protect our investment," declared Hagen.
"Somebody was trying to sue us on the grounds they could rely on our inspection. And we said no. We conduct an inspection for our protection, not yours. And therefore you can't sue us.
"Even if we have inspected it, and even if the house will be sold under FHA, we take the position these inspections are conducted for FHA's benefit. We're not conducting them for the buyer or the seller.
"An inspection based on just appraising the value of the property may be perfectly adequate for protecting us, because after all, if the thing defaults we can always sell it off again."
Inspection Isn't Protection
"But it's not adequate to protect the buyer, who may be a low-income person who doesn't have the brains or knowledge to protect himself."
There seems to be some confusion in the local FHA office over whether or not it is permissible to use the phrase "FHA approved."
The subject came up during an hour and 25 minute interview reporters had with three FHA officials.
Asked about real estate agents who trade on FHA approval, Walter R. Reynolds, chief of FHA's low income housing and rent supplement branch, observed:
"The term has been abused. FHA at the present time is making a study of it."
There is, however, no such confusion in Washington. Said HUD secretary George Romney last March:
"FHA does not approve homes. It appraises homes for value and requires certain standards of mortgage risk acceptability.
Tell Them to Stop
"Advertisements which state that a home is ‘FHA Approved' are misleading and are prohibited by statute.
"When such advertising in newspapers, display signs, or other media is called to our attention, the Office of General promptly requires that the misleading words be deleted from the advertisement."
HUD's Hagen told The Inquirer that when someone files a complaint about a real estate broker advertising a property as "FHA Approved," "we write them and tell them not to do it.
"Usually, you tell somebody to stop, they normally stop. I don't believe I've ever gotten a second complaint from anybody, so I assume people are stopping it."
Asked specifically about the use of signs or advertisements which state "FHA Approved," Hagen replied flatly: "That is illegal."
A Federal statute states that it is unlawful for anyone to falsely advertise or represent that a property is FHA approved. Anyone convicted of violating the statute is subject to a $1,000 fine, a one-year prison sentence or both.
But Philadelphia's speculators and real estate brokers use the "FHA approved" phrase freely in newspaper advertisements, on signs or in conversations with prospective homebuyers.
The practice has taken its toll in the inner city, where families who have never bought houses assume that "FHA approved" means the government has inspected the houses and found everything in good, working order.
Listen to the story of Mrs. Francetta Jones, a 26-year-old mother of three young children and one of a growing number of North Philadelphia's new homeowners, which is to say she is sadly disillusioned.
From $1,550 to $4,300
Mrs. Jenkins purchased a two-story rowhouse at 2767 N. Philip st. in the spring of 1970 from Theodore Clearfield, a real estate broker with offices at 3701 N. Broad st.
She paid $4,300 for the two-bedroom house. Four months earlier, Clearfield bought the property for $1,550.
"I read about Clearfield in the paper," she said. "I went to his office and he brought me to look at the house. It looked all right.
"He said I didn't have anything to worry about, that everything was done. He told me about FHA, but to tell you the truth, he told me a lot of things I didn't understand because I don't know anything about houses.
"I moved in here in May of last year. It was two days before Mother's Day. I was looking for a house to rent, actually. I was living with my aunt in Willow Grove and the baby was on the way and there wasn't enough room.
"When I moved in, I didn't have a stove. I had to call him up and tell him and he sent one. Even after I got the stove, it was two weeks until a man finally came out to hook it up.
"The first time there was a hard rain, the roof leaked in my kids' bedroom. The water came down the wall and all over the ceiling.
That's Your Responsibility
"When I called him (Clearfield), he said, ‘It's your problem now.' I had to have it fixed myself and my father paid for it.
"The bathtub stopped up and I had to get a plumber for that. That was the last thing I called Clearfield for. He said, ‘That's your responsibility.'
The windows are really drafty. In the winter, I have to put plastic over the windows and keep the temperature (thermostat) at 85. It cost me quite a bit to keep oil in the house. I was spending $40 a month.
"Clearfield said there was an exterminator in and everything. I wasn't in here two weeks and I had to have an exterminating company in because the bugs were trying to take over."
After one year, Mrs. Jenkins has some definite views on home ownership. Said she:
"At one time I was thinking of giving the house and trying to find something better. If I had it to do all over again, I would never get a house like this."
Despite the assorted water problems and the presence of three young children – aged 14 months, 4 and 6 years – Mrs. Jenkins' home is neat and clean.
She is better off than many other women homeowners because, as she puts it: "If something goes wrong with the house, I tell my father and he usually fixes it."
One of those who is not as fortunate is Mrs. Alma Murphy. She lives with her two children, Gerald, 17 months, and Melvin, 4 years old, at 1461 Myrtlewood st.
Mrs. Murphy, like Mrs. Jenkins, purchased her two-story, red-brick rowhouse from Theodore Clearfield.