Financial History Issue 113 (Spring 2015) | Page 13

Collection of the Museum of American Finance

EDUCATORS’ PERSPECTIVE

Oklahoma City Building and Loan Association stock certificate, 1919.

in the United States, but by 1933 about
5,000 had been forced to close. By 1941
more than half of the B&Ls operating in
1929 had failed. As things grew worse,

the federal government intervened in an
attempt to relieve the crisis.
Economist Alan Blinder, along with
Green and Wachter, contend that the

fixed-rate, self-amortizing, long-term
mortgage was invented by the Home
Owners’ Loan Corporation (HOLC), one
of the alphabet agencies created by the
Roosevelt administration to deal with the
mortgage crisis. The HOLC was established in 1933 and charged with buying
the mortgages of those who were “in hard
straits through no fault of their own.” It
was authorized to issue government guaranteed bonds, use the proceeds to purchase mortgages that were in default, and
refinance them on more generous terms.
Lending institutions were generally happy
to get these troubled loans off their books,
while borrowers were afforded more reasonable terms on HOLC loans. In the
three years after its inception, the HOLC
converted about one million short-term,
interest-only loans into fixed-rate, 15-year
fully-amortized mortgages.
The book Well Worth Saving: How the
New Deal Safeguarded Home Ownership
by Price Fishback, Jonathan Rose and
Kenneth Snowden begins with the story
of a couple from Coeur D’Alene, Idaho,
who purchased their home in 1929 for
$3,000. A down payment of $1,750 was
required, and the remaining $1,250 was
borrowed from the Citizens Savings and
Loan Society in Spokane, Washington.
The husband was a truck driver who made
over $2,000 a year during the 1920s, but in
the early 1930s his wife became terminally
ill. Faced with mounting medical bills and
a severely reduced income because of the
Depression, the couple stopped making
payments on their mortgage in late 1931.
Two and a half years later, Citizens Savings was on the verge of foreclosing when
the now-widowed husband applied for a
loan from the HOLC. In spite of the fact
that the home was now worth only $2,500,
the HOLC purchased the loan for the full
value that was owed to Citizens Savings,
including the interest payments that had
not been made over the past two and a
half years. The HOLC then consolidated
the debts of the homeowner and reissued
a loan with a below market interest rate
of 5%. The loan principal amount also
included money for payment of back taxes
and much needed home repairs. With
low monthly
» continued on page 36

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