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The Anatomy of a Residential Mortgage Crisis: A Look Back to the 1930s

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  • Kenneth A. Snowden

Abstract

Looking back to the 1930s provides the opportunity to examine one severe mortgage crisis as we live through another. This paper examines the development of the residential mortgage market during the 1920s, the institutional disruptions that occurred in the 1930s and the policy response of federal and state governments. The crisis reshaped the structure and development of the residential mortgage market and led to a postwar system in which portfolio lenders dominated both local and interregional markets. Some pre-1930 innovations--mortgage insurance and high-leverage, affordable loans--were written into federal programs and became part of the new system. But early experiments and proposals for securitization did not survive the 1930s and the implementation of this innovation was delayed for forty years.

Suggested Citation

  • Kenneth A. Snowden, 2010. "The Anatomy of a Residential Mortgage Crisis: A Look Back to the 1930s," NBER Working Papers 16244, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:16244
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    1. Naomi R. Lamoreaux & Daniel M. G. Raff, 1995. "Coordination and Information: Historical Perspectives on the Organization of Enterprise," NBER Books, National Bureau of Economic Research, Inc, number lamo95-1, July.
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    6. Engerman,Stanley L. & Hoffman,Philip T. & Rosenthal,Jean-Laurent & Sokoloff,Kenneth L. (ed.), 2003. "Finance, Intermediaries, and Economic Development," Cambridge Books, Cambridge University Press, number 9780521820547.
    7. Rosalind Tough, 1951. "The Life Cycle of the Home Owners' Loan Corporation," Land Economics, University of Wisconsin Press, vol. 27(4), pages 324-331.
    8. Carl F. Behrens, 1952. "Commercial Bank Activities in Urban Mortgage Financing," NBER Books, National Bureau of Economic Research, Inc, number behr52-1, July.
    9. Kenneth A. Snowden, 2010. "Covered Farm Mortgage Bonds in the Late Nineteenth Century U.S," NBER Working Papers 16242, National Bureau of Economic Research, Inc.
    10. Kenneth Snowden, 1995. "The Evolution of Interregional Mortgage Lending Channels, 1870-1940: The Life Insurance-Mortgage Company Connection," NBER Chapters, in: Coordination and Information: Historical Perspectives on the Organization of Enterprise, pages 209-256, National Bureau of Economic Research, Inc.
    11. C. Lowell Harriss, 1951. "History and Policies of the Home Owners' Loan Corporation," NBER Books, National Bureau of Economic Research, Inc, number harr51-1, July.
    12. Snowden, Kenneth A, 1997. "Building and loan associations in the U.S., 1880-1893: the origins of localization in the residential mortgage market," Research in Economics, Elsevier, vol. 51(3), pages 227-250, September.
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    Citations

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    Cited by:

    1. Fleitas, Sebastian & Fishback, Price & Snowden, Kenneth, 2016. "Economic Crisis and the Demise of a Popular Contractual Form: Building and Loan Mortgage Contracts in the 1930s," CAGE Online Working Paper Series 275, Competitive Advantage in the Global Economy (CAGE).
    2. Sebastian Fleitas & Matthew Jaremski & Steven Sprick Schuster, 2023. "The U.S. Postal Savings System and the collapse of building and loan associations during the Great Depression," Southern Economic Journal, John Wiley & Sons, vol. 89(4), pages 1196-1215, April.
    3. David A. Price & John R. Walter, 2016. "Private Efforts for Affordable Mortgage Lending Before Fannie and Freddie," Economic Quarterly, Federal Reserve Bank of Richmond, issue Q4, pages 321-351.
    4. Eugene N. White, 2014. "Lessons from the Great American Real Estate Boom and Bust of the 1920s," NBER Chapters, in: Housing and Mortgage Markets in Historical Perspective, pages 115-158, National Bureau of Economic Research, Inc.
    5. Michael Brocker & Christopher Hanes, 2014. "The 1920s American Real Estate Boom and the Downturn of the Great Depression: Evidence from City Cross-Sections," NBER Chapters, in: Housing and Mortgage Markets in Historical Perspective, pages 161-201, National Bureau of Economic Research, Inc.
    6. Courtemanche, Charles & Snowden, Kenneth, 2011. "Repairing a Mortgage Crisis: HOLC Lending and Its Impact on Local Housing Markets," The Journal of Economic History, Cambridge University Press, vol. 71(2), pages 307-337, June.
    7. W. Scott Frame & Lawrence J. White, 2009. "Technological change, financial innovation, and diffusion in banking," FRB Atlanta Working Paper 2009-10, Federal Reserve Bank of Atlanta.
    8. Fishback, Price & Fleitas, Sebastian & Rose, Jonathan & Snowden, Ken, 2020. "Collateral Damage: The Impact of Foreclosures on New Home Mortgage Lending in the 1930s," The Journal of Economic History, Cambridge University Press, vol. 80(3), pages 853-885, September.
    9. Fleitas, Sebastian & Fishback, Price & Snowden, Kenneth, 2018. "Economic crisis and the demise of a popular contractual form: Building & Loans in the 1930s," Journal of Financial Intermediation, Elsevier, vol. 36(C), pages 28-44.
    10. Douglas J. Elliott & Greg Feldberg & Andreas Lehnert, 2013. "The history of cyclical macroprudential policy in the United States," Finance and Economics Discussion Series 2013-29, Board of Governors of the Federal Reserve System (U.S.).
    11. Daniel K. Fetter, 2013. "How Do Mortgage Subsidies Affect Home Ownership? Evidence from the Mid-century GI Bills," American Economic Journal: Economic Policy, American Economic Association, vol. 5(2), pages 111-147, May.
    12. Price V. Fishback & Alfonso Flores-Lagunes & William C. Horrace & Shawn Kantor & Jaret Treber, 2011. "The Influence of the Home Owners' Loan Corporation on Housing Markets During the 1930s," The Review of Financial Studies, Society for Financial Studies, vol. 24(6), pages 1782-1813.
    13. Christian Alexander Belabed, 2015. "Income Distribution and the Great Depression," IMK Working Paper 153-2015, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    14. Jonathan D. Rose, 2022. "Reassessing the magnitude of housing price declines and the use of leverage in the Depressions of the 1890s and 1930s," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 50(4), pages 907-930, December.
    15. Rik Frehen & William N. Goetzmann & K. Geert Rouwenhorst, 2014. "Dutch Securities for American Land Speculation in the Late Eighteenth Century," NBER Chapters, in: Housing and Mortgage Markets in Historical Perspective, pages 287-304, National Bureau of Economic Research, Inc.
    16. Daniel K. Fetter, 2014. "The Twentieth-Century Increase in U.S. Home Ownership: Facts and Hypotheses," NBER Chapters, in: Housing and Mortgage Markets in Historical Perspective, pages 329-350, National Bureau of Economic Research, Inc.
    17. Alexander J. Field, 2014. "The Interwar Housing Cycle in the Light of 2001-2012: A Comparative Historical Perspective," NBER Chapters, in: Housing and Mortgage Markets in Historical Perspective, pages 39-80, National Bureau of Economic Research, Inc.
    18. Kenneth Snowden, 2014. "A Historiography of Early NBER Housing and Mortgage Research," NBER Chapters, in: Housing and Mortgage Markets in Historical Perspective, pages 15-36, National Bureau of Economic Research, Inc.
    19. Alexander J. Field, 2013. "The Interwar Housing Cycle in the Light of 2001-2011: A Comparative Historical Approach," NBER Working Papers 18796, National Bureau of Economic Research, Inc.
    20. Rose, Jonathan, 2021. "Short-term residential mortgage contracts in American economic history," Explorations in Economic History, Elsevier, vol. 79(C).
    21. Natacha Postel-Vinay, 2014. "Debt Dilution in 1920s America: Lighting the Fuse of a Mortgage Crisis," Working Papers 0053, European Historical Economics Society (EHES).
    22. Jihad Dagher, 2018. "Regulatory Cycles: Revisiting the Political Economy of Financial Crises," IMF Working Papers 2018/008, International Monetary Fund.
    23. Siodla, James, 2020. "Debt and taxes: Fiscal strain and US city budgets during the Great Depression," Explorations in Economic History, Elsevier, vol. 76(C).
    24. Quincy, Sarah, 2022. "Income shocks and housing spillovers: Evidence from the World War I Veterans’ Bonus," Journal of Urban Economics, Elsevier, vol. 132(C).
    25. Kenneth Snowden & Eugene N. White & Price Fishback, 2014. "Introduction to "Housing and Mortgage Markets in Historical Perspective"," NBER Chapters, in: Housing and Mortgage Markets in Historical Perspective, pages 1-13, National Bureau of Economic Research, Inc.

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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G01 - Financial Economics - - General - - - Financial Crises
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations
    • N12 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - U.S.; Canada: 1913-
    • N62 - Economic History - - Manufacturing and Construction - - - U.S.; Canada: 1913-
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

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