The Influence of the Home Owners' Loan Corporation on Housing Markets During the 1930s

Abstract

Problems with mortgage financing are widely considered to be a major cause of the recent financial meltdown. Several modern programs have been designed to mimic the Home Owners' Loan Corporation of the 1930s. The HOLC replaced the toxic assets on the balance sheets of financial institutions by buying troubled mortgages and then refinanced the mortgages to allow home owners to avoid losing their homes. We analyze the impact of the HOLC on the nonfarm rental and owned home markets after developing a new data set for over 2800 counties in the United States. In counties with fewer than 50,000 people, where financial markets were not as well developed as in larger cities, the HOLC's financial interventions helped stimulate the demand for owned housing more than it influenced the supply. In rental markets the HOLC appears to have contributed to an increase in the supply of rental housing that was likely associated the improvement of the balance sheets of lending institutions.

The Incredible HOLC? Mortgage Relief during the Great Depression

“…Simple participation brought benefits to borrowers, through forgiving loan structures if not through reductions in principal debts. This paper should not be interpreted as diminishing the value of that relief, nor of the positive macroeconomic effects studied by Fishback et al (2011) and Courtemanche and Snowden (2009). That being said, in many cases, borrower equity relative to market prices post‐HOLC intervention was small, less than 20% and in some cases even negative, leaving those borrowers vulnerable to any further deterioration of the property’s value.…”

“…Harriss (1951) is a valuable early summary of the HOLC, and Tough (1951) is another early appraisal focusing on the financial results. Two recent studies, completed by Fishback et al (2011) and Courtemanche and Snowden (2009), examine on a cross‐county basis the impact of the HOLC on housing market outcomes, such as the homeownership rate or housing prices. Otherwise, until recently, there had been a limited amount of research with respect to the HOLC, save for a literature among historians and other social scientists studying its practices relating to discrimination in lending.…”

Collateral Damage: The Impact of Foreclosures on New Home Mortgage Lending in the 1930s

“…Secondary markets for B&L shares were less likely to develop in smaller counties and B&Ls in smaller areas likely had smaller networks of potential investors. Courtemanche and Snowden (2011) and Fishback et al (2011) found substantially larger effects of the HOLC purchase and refinancing of loans on housing prices and home ownership in smaller counties for similar reasons.…”

“…HOLC refusals, therefore, left substantial amounts of foreclosed real estate on the balance sheets of B&Ls and other intermediaries. The consensus of recent evidence suggests that the HOLC ameliorated but did not reverse the negative impact of the crisis on home values, ownership and construction (Fishback et al 2011;Courtemanche and Snowden 2011). The goal of this paper is to examine whether the real estate that remained on the B&Ls balance sheet curtailed their mortgage lending.…”

“…al. 2006, series Dc1257.8 Courtemanche and Snowden (2011),Fishback, Flores-Lagunes, Horrace, Kantor, and Treber (2011),Rose (2011),and Fishback, Rose, and Snowden (2013) examine the Home Owners' Loan Corporation. See also Field (2014),Fishback and Kollman (2014),White (2014),Brocker and Hanes (2014),, Postel-Vinay (2016), andCortes and Wiedenmier (2018).…”