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The federal response to home mortgage distress: lessons from the Great Depression

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  • David C. Wheelock

Abstract

This article examines the federal response to mortgage distress during the Great Depression: It documents features of the housing cycle of the 1920s and early 1930s, focusing on the growth of mortgage debt and the subsequent sharp increase in mortgage defaults and foreclosures during the Depression. It summarizes the major federal initiatives to reduce foreclosures and reform mortgage market practices, focusing especially on the activities of the Home Owners' Loan Corporation (HOLC), which acquired and refinanced one million delinquent mortgages between 1933 and 1936. Because the conditions under which the HOLC operated were unusual, the author cautions against drawing strong policy lessons from the HOLC's activities. Nonetheless, similarities between the Great Depression and the recent episode suggest that a review of the historical experience can provide insights about alternative policies to relieve mortgage distress.

Suggested Citation

  • David C. Wheelock, 2008. "The federal response to home mortgage distress: lessons from the Great Depression," Review, Federal Reserve Bank of St. Louis, issue May, pages 133-148.
  • Handle: RePEc:fip:fedlrv:y:2008:i:may:p:133-148:n:v.90no.3,pt.1
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    File URL: https://files.stlouisfed.org/files/htdocs/publications/review/08/05/Wheelock.pdf
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    References listed on IDEAS

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    1. John M. Quigley, 2006. "Federal credit and insurance programs: housing," Review, Federal Reserve Bank of St. Louis, pages 281-310.
    2. Yuliya Demyanyk & Otto Van Hemert, 2007. "Understanding the subprime mortgage crisis," Supervisory Policy Analysis Working Papers 2007-05, Federal Reserve Bank of St. Louis.
    3. J. E. Morton, 1956. "Urban Mortgage Lending: Comparative Markets and Experience," NBER Books, National Bureau of Economic Research, Inc, number mort56-1.
    4. C. Lowell Harriss, 1951. "History and Policies of the Home Owners' Loan Corporation," NBER Books, National Bureau of Economic Research, Inc, number harr51-1.
    5. Leo Grebler & David M. Blank & Louis Winnick, 1956. "Capital Formation in Residential Real Estate: Trends and Prospects," NBER Books, National Bureau of Economic Research, Inc, number greb56-1.
    6. Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, pages 257-276.
    7. Hamilton, James D., 1987. "Monetary factors in the great depression," Journal of Monetary Economics, Elsevier, pages 145-169.
    8. Harold L. Cole & Lee E. Ohanian, 1999. "The Great Depression in the United States from a neoclassical perspective," Quarterly Review, Federal Reserve Bank of Minneapolis, pages 2-24.
    9. Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, pages 257-276.
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    Citations

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    Cited by:

    1. David C. Wheelock, 2008. "Changing the rules: state mortgage foreclosure moratoria during the Great Depression," Review, Federal Reserve Bank of St. Louis, pages 569-584.
    2. William N. Goetzmann & Frank Newman, 2010. "Securitization in the 1920's," NBER Working Papers 15650, National Bureau of Economic Research, Inc.
    3. Courtemanche, Charles & Snowden, Ken, 2010. "Repairing a Mortgage Crisis: HOLC Lending and its Impact on Local Housing Markets," UNCG Economics Working Papers 10-1, University of North Carolina at Greensboro, Department of Economics.
    4. Harding, John P. & Rosenblatt, Eric & Yao, Vincent W., 2009. "The contagion effect of foreclosed properties," Journal of Urban Economics, Elsevier, pages 164-178.
    5. Todd E. Clark & Michael W. McCracken, 2009. "Combining Forecasts from Nested Models," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(3), pages 303-329, June.
    6. Rajan, Raghuram G., 2013. "The Credit Crisis and Cycle-Proof Regulation," Review, Federal Reserve Bank of St. Louis, pages 461-467.
    7. Schniter, Eric & Sheremeta, Roman M. & Sznycer, Daniel, 2013. "Building and rebuilding trust with promises and apologies," Journal of Economic Behavior & Organization, Elsevier, pages 242-256.
    8. 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(02), pages 307-337, June.

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