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The New Deal and the Origins of the Modern American Real Estate Loan Contract

In: The Microeconomics of New Deal Policy

Author

Listed:
  • Jonathan Rose
  • Kenneth Snowden

Abstract

The fully amortized mortgage loan contract is an important instance of financial innovation in the U.S. residential mortgage market. We examine the adoption of this contract from the 1880s to the 1930s by building and loan (B&L) associations, the nation's most important institutional home mortgage lenders at the time. A chain of complementary innovations by B&Ls gradually reduced the costs of adopting amortization, supporting moderate use by the 1920s. During the crisis of the 1930s, the poor performance of the traditional B&L loan contract radically increased the benefit of adoption, as borrowers demanded the new contract. The adoption examined here occurred primarily in the conventional loan market because B&Ls, unlike other lenders, generally avoided the use of the new Federal Housing Administration insurance program. The New Deal may have had more impact through new federal savings and loan charters, which incorporated many of the complementary innovations that supported the new form of lending.
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Suggested Citation

  • Jonathan Rose & Kenneth Snowden, 2012. "The New Deal and the Origins of the Modern American Real Estate Loan Contract," NBER Chapters, in: The Microeconomics of New Deal Policy, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberch:13202
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    Cited by:

    1. 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.
    2. William J. Collins & Gregory T. Niemesh, 2024. "Income Gains and the Geography of the US Home Ownership Boom, 1940 to 1960," NBER Chapters, in: The Economic History of American Inequality: New Evidence and Perspectives, pages 87-121, National Bureau of Economic Research, Inc.
    3. 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.
    4. Sebastián Fleitas & Price Fishback & Kenneth Snowden, 2015. "Forbearance by Contract: How Building and Loans Mitigated the Mortgage Crisis of the 1930s," NBER Working Papers 21786, National Bureau of Economic Research, Inc.
    5. Olsen, Edgar O. & Zabel, Jeffrey E., 2015. "US Housing Policy," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 887-986, Elsevier.
    6. Jonathan D. Rose, 2018. "Contract Choice in the Interwar US Residential Mortgage Market," Working Paper Series WP-2018-13, Federal Reserve Bank of Chicago.
    7. 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).
    8. 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.
    9. Todd Messer, 2022. "Financial Failure and Depositor Quality: Evidence from Building and Loan Associations in California," International Finance Discussion Papers 1354, Board of Governors of the Federal Reserve System (U.S.).
    10. Rose, Jonathan, 2021. "Short-term residential mortgage contracts in American economic history," Explorations in Economic History, Elsevier, vol. 79(C).
    11. Degorce, Victor & Monnet, Eric, 2024. "The Great Depression as a Savings Glut," The Journal of Economic History, Cambridge University Press, vol. 84(3), pages 874-916, September.

    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • N21 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: Pre-1913
    • N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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