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We thank Price Fishback, Stephen Holland, Jonathan Rose and seminar participants at the University of North Carolina Greensboro, the St. Louis Federal Reserve and the 2010 ASSA Meetings for comments and suggestions. We are indebted as well to the editors and three anonymous referees for comments that have improved both content and exposition. We also thank David Cornejo, Diana Liu, Anders Olson, and Spencer Snowden for assistance in assembling the data. All errors are our own.
Between 1929 and 1933 hundreds of thousands of homeowners defaulted, thousands of mortgage lending institutions failed, and the supply of home loans dried up. Observers of events since 2007 will find striking parallels in the background and character of the housing and mortgage crisis of the early 1930s. That episode also followed a decade of rapid growth and innovation in the home loan market that quickly reversed into a self-reinforcing cycle of delinquency, foreclosure, forced property sales, and decreases in home values. Henry Hoagland, whom we quote at the start of this article, was well-positioned to characterize the crisis as a member of the Federal Home Loan Bank Board. The FHLBB supervised most Depression-era housing programs including the Home Owners' Loan Corporation, which was in the midst of refinancing about one million delinquent mortgages when Hoagland penned his observations in 1935. HOLC purchased all of these distressed loans from private institutions and investors, so it provided support to a severely disrupted mortgage market as well as assistance to individual homeowners. By 1936 HOLC had refinanced nearly one out of every ten nonfarm homeowners and held nearly 20 percent of the nation's residential mortgage debt.
HOLC was a remarkable federal initiative in at least three respects. First, the agency organized and began to operate a national lending network just a few months after being created in the summer of 1933. Second, the corporation dissolved in 1951 (as originally intended) after servicing the mortgages it had written between 1933 and 1936.2 Finally, HOLC represented a comprehensive solution to the housing crisis by combining the functions of a bad mortgage bank--it purchased distressed assets from private investors--and a loan modification program--it refinanced those mortgages on more liberal terms.3 Lowell Harriss' detailed account of...