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Changing the rules: state mortgage foreclosure moratoria during the Great Depression

  • David C. Wheelock

Many U.S. states imposed temporary moratoria on farm and nonfarm residential mortgage foreclosures during the Great Depression. This article describes the conditions that led some states to impose these moratoria and other mortgage relief during the Depression and discusses the economic effects. Moratoria were more common in states with large farm populations (as a percentage of total state population) and high farm mortgage foreclosure rates, although nonfarm mortgage distress appears to help explain why a few states with relatively low farm foreclosure rates also imposed moratoria. The moratoria reduced farm foreclosure rates in the short run, but they also appear to have reduced the supply of loans and made credit more expensive for subsequent borrowers. The evidence from the Great Depression demonstrates how government actions to reduce foreclosures can impose costs that should be weighed against potential benefits.

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File URL: http://research.stlouisfed.org/publications/review/08/11/Wheelock.pdf
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Article provided by Federal Reserve Bank of St. Louis in its journal Review.

Volume (Year): (2008)
Issue (Month): Nov ()
Pages: 569-584

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Handle: RePEc:fip:fedlrv:y:2008:i:nov:p:569-584:n:v.90no.6
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  1. Jaffe, Austin J & Sharp, Jeffery M, 1996. "Contract Theory and Mortgage Foreclosure Moratoria," The Journal of Real Estate Finance and Economics, Springer, vol. 12(1), pages 77-96, January.
  2. Daniel J. McDonald & Daniel L. Thornton, 2008. "A primer on the mortgage market and mortgage finance," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 31-46.
  3. Alston, Lee J., 1983. "Farm Foreclosures in the United States During the Interwar Period," The Journal of Economic History, Cambridge University Press, vol. 43(04), pages 885-903, December.
  4. Rucker, Randal R & Alston, Lee J, 1987. "Farm Failures and Government Intervention: A Case Study of the 1930' s," American Economic Review, American Economic Association, vol. 77(4), pages 724-30, September.
  5. Kahn, Charles M & Yavas, Abdullah, 1994. "The Economic Role of Foreclosures," The Journal of Real Estate Finance and Economics, Springer, vol. 8(1), pages 35-51, January.
  6. Alston, Lee J, 1984. "Farm Foreclosure Moratorium Legislation: A Lesson from the Past," American Economic Review, American Economic Association, vol. 74(3), pages 445-57, June.
  7. Meador, Mark, 1982. "The effects of mortgage laws on home mortgage rates," Journal of Economics and Business, Elsevier, vol. 34(2), pages 143-148.
  8. 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.
  9. Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, vol. 73(3), pages 257-76, June.
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