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Forbearance by Contract: How Building and Loans Mitigated the Mortgage Crisis of the 1930s

Author

Listed:
  • Sebastián Fleitas
  • Price Fishback
  • Kenneth Snowden

Abstract

During the Great Depression, Building and Loans (B&Ls), the leading home lenders, had a structure that mitigated the crisis. Borrowers were owners of the B&L and dissolution of the institution required a two-thirds majority vote. Using panel data from New Jersey in the 1930s, we find that this voting rule delayed dissolution by about one year. The year delay allowed one-fourth of the borrowers in the at-risk B&L to pay off their loans, but nonborrowers lost share value. The net loss was roughly -0.67 percent of the value of all New Jersey B&L assets in the mid-1930s.

Suggested Citation

  • 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.
  • Handle: RePEc:nbr:nberwo:21786
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    References listed on IDEAS

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    1. Field, Alexander James, 1992. "Uncontrolled Land Development and the Duration of the Depression in the United States," The Journal of Economic History, Cambridge University Press, vol. 52(04), pages 785-805, December.
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    7. Mulherin, J Harold & Muller, Walter J, III, 1987. "Volatile Interest Rates and the Divergence of Incentives in Mortgage Contracts," Journal of Law, Economics, and Organization, Oxford University Press, vol. 3(1), pages 99-115, Spring.
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    Cited by:

    1. Charles W. Calomiris & Matthew Jaremski, 2016. "Deposit Insurance: Theories and Facts," Annual Review of Financial Economics, Annual Reviews, vol. 8(1), pages 97-120, October.

    More about this item

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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