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| Home Owners' Loan Corporation (HOLC) |
Home Owners' Loan Corporation: A New
Deal Solution To Current Foreclosure
Mess
September 27, 2011
The Home Owners' Loan Corporation (HOLC) was created in 1933 under the presidency of
Franklin D Roosevelt, to fix the housing crisis and to keep the banks open. HOLC refinanced
mortgages that were currently in default and helped over one million people avoid foreclosure.
The corporation ceased lending in 1935 after all the available capital was spent.
Economic conditions were similar to what we are facing today. We were still trying to recover
from the Great Depression (1929); unemployment was high; and there were mounting bank
failures; and there was the fall in stock prices which started around September 1929. The
Depression was prolonged and lasted well into 1939.
Today the Dow is around 11,264. Back in October 2007 we saw the Dow hit 13,930.
Unemployment is still stuck around 9.1% nationally. One in five homes are behind on their
mortgages. Two more banks were closed this week bringing the total for the year to 73.
According to ReatyTrac there are 1,532,480 foreclosure homes across the nation. The key issue
to economic recovery today is the lack of consumer confidence.
History seems to be repeating itself. So we should seriously consider borrowing a page from the
Home Owners' Loan Corporation and try and fix the housing market.
HOLC offered mortgages up a maximum loan-to-value of 80% to a maximum of $14,000.
Generally the banks would only lend up to a maximum loan-to-value of 60%. The banks also
offered a higher interest rate of around 8% and the borrowers were given terms of 5 to 10 years.
Mortgage lending was very restrictive and only 864 mortgages were issued in 1933. This
number is down from 5,778 in 1928. HOLC came along at the right time.
HOLC interest rate was 5% and the term of the mortgages was 25 years. In addition, HOLC
provided insurance for its loans through the Federal Housing Administration (FHA). The Home
Owners' Loan Corporation favored single family homes on the city outskirts. This helped to foster
the growth of the "suburbs" after World War II. Home ownership grew from 40% during the
roaring 20s to 70% by the mid 1990s.
The HOLC was a success. It took a mere $200 million to set up the Home Owners' Loan
Corporation. The money for the mortgages was raised by issuing $2 billion in tax exempt bonds.
HOLC did run into some homeowners who just couldn't be saved. In these cases the houses
were taken through foreclosure. The houses were then rented.
When the Home Owners' Loan Corporation officially closed in 1951, the assets were sold to
private lenders. There was a small profit which was returned to the Treasury.
The negative aspect of the Home Owners' Loan Corporation was racial discrimination. The
Loan Experience Card specified race and immigrant status. Records of HOLC showed that
44% of its help went to "native white" and 42% went to "native white and foreign". Help to
"Negro" was a dismal 1%. Half of Detroit where blacks lived was excluded from the HOLC
program, and so was a third of Chicago.
The Home Owners' Loan Corporation changed where Americans lived and how they financed
their mortgages. Millions are flocking to the suburbs and most mortgage terms are 25 years and
30 years.
Deal Solution To Current Foreclosure
Mess
September 27, 2011
The Home Owners' Loan Corporation (HOLC) was created in 1933 under the presidency of
Franklin D Roosevelt, to fix the housing crisis and to keep the banks open. HOLC refinanced
mortgages that were currently in default and helped over one million people avoid foreclosure.
The corporation ceased lending in 1935 after all the available capital was spent.
Economic conditions were similar to what we are facing today. We were still trying to recover
from the Great Depression (1929); unemployment was high; and there were mounting bank
failures; and there was the fall in stock prices which started around September 1929. The
Depression was prolonged and lasted well into 1939.
Today the Dow is around 11,264. Back in October 2007 we saw the Dow hit 13,930.
Unemployment is still stuck around 9.1% nationally. One in five homes are behind on their
mortgages. Two more banks were closed this week bringing the total for the year to 73.
According to ReatyTrac there are 1,532,480 foreclosure homes across the nation. The key issue
to economic recovery today is the lack of consumer confidence.
History seems to be repeating itself. So we should seriously consider borrowing a page from the
Home Owners' Loan Corporation and try and fix the housing market.
HOLC offered mortgages up a maximum loan-to-value of 80% to a maximum of $14,000.
Generally the banks would only lend up to a maximum loan-to-value of 60%. The banks also
offered a higher interest rate of around 8% and the borrowers were given terms of 5 to 10 years.
Mortgage lending was very restrictive and only 864 mortgages were issued in 1933. This
number is down from 5,778 in 1928. HOLC came along at the right time.
HOLC interest rate was 5% and the term of the mortgages was 25 years. In addition, HOLC
provided insurance for its loans through the Federal Housing Administration (FHA). The Home
Owners' Loan Corporation favored single family homes on the city outskirts. This helped to foster
the growth of the "suburbs" after World War II. Home ownership grew from 40% during the
roaring 20s to 70% by the mid 1990s.
The HOLC was a success. It took a mere $200 million to set up the Home Owners' Loan
Corporation. The money for the mortgages was raised by issuing $2 billion in tax exempt bonds.
HOLC did run into some homeowners who just couldn't be saved. In these cases the houses
were taken through foreclosure. The houses were then rented.
When the Home Owners' Loan Corporation officially closed in 1951, the assets were sold to
private lenders. There was a small profit which was returned to the Treasury.
The negative aspect of the Home Owners' Loan Corporation was racial discrimination. The
Loan Experience Card specified race and immigrant status. Records of HOLC showed that
44% of its help went to "native white" and 42% went to "native white and foreign". Help to
"Negro" was a dismal 1%. Half of Detroit where blacks lived was excluded from the HOLC
program, and so was a third of Chicago.
The Home Owners' Loan Corporation changed where Americans lived and how they financed
their mortgages. Millions are flocking to the suburbs and most mortgage terms are 25 years and
30 years.
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