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

Author

Listed:
  • Jonathan Rose

    (Federal Reserve Board)

  • Kenneth Snowden

    (University of North Carolina at Greensboro, Department of Economics)

Abstract

We treat the direct reduction loan contract as an instance of financial innovation and describe its adoption within the building and loan (B&L) industry beginning in the 1880s and culminating in the 1930s. A long chain of complementary innovations at B&Ls gradually reduced the costs of adoption, leading to moderate use by the 1920s and potential for far greater use. In the 1930s, extreme dissatisfaction with other contracts radically altered the adoption calculus, as did new competition from FHA-insured lenders. Federal savings and loan charters built upon the accumulated innovations at B&Ls by emulating the small segment of the industry that had adopted direct reduction lending by the 1920s. Other policies helped restructure the liabilities of B&Ls to accommodate the loss of credit risk sharing and mutuality inherent to older contracts. New Deal policies therefore built upon and facilitated the ongoing process of financial innovation that brought the familiar modern loan contract to the conventional loan market.

Suggested Citation

  • Jonathan Rose & Kenneth Snowden, 2012. "The New Deal and the Origins of the Modern American Real Estate Loan Contract in the Building and Loan Industry," UNCG Economics Working Papers 12-6, University of North Carolina at Greensboro, Department of Economics.
    • Handle: RePEc:ris:uncgec:2012_006
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    References listed on IDEAS

    as
    1. Snowden, Kenneth A., 2010. "Covered Farm Mortgage Bonds in the United States During the Late Nineteenth Century," The Journal of Economic History, Cambridge University Press, vol. 70(4), pages 783-812, December.
    2. 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, Enero-Abr.
    3. 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.
    4. 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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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Mutuality and Financial Innovation
      by bbatiz in NEP-HIS blog on 2012-06-22 15:58:32

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    Cited by:

    1. 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.
    2. 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).

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    More about this item

    Keywords

    New Deal; Building and Loan;

    JEL classification:

    • N00 - Economic History - - General - - - General

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