Repairing a Mortgage Crisis: HOLC Lending and its Impact on Local Housing Market

Between 1933 and 1936 the Home Owners’ Loan Corporation purchased more than a million delinquent mortgages from private lenders and refinanced those loans for the borrowers. Its primary goal was to break the cycle of foreclosure, forced property sales and decreases in home values that was affecting local housing markets throughout the nation. We find that the volume of HOLC lending was related to measures of distress in local (county-level) housing markets and that these interventions increased 1940 median home values and homeownership rates, but not new home building.

“[A] tremendous surge of residential building in the [last] decade… was matched by an ever-increasing supply of homes sold on easy terms [and only]… a small decline in prices was necessary to wipe out this equity. Unfortunately, deflationary processes are never satisfied with small declines in values. They feed upon themselves and produce results out of all proportion to their causes… In the field of real estate finance, particularly, we have depended so much upon credit that our whole value structure can be thrown out of balance by relatively slight shocks. When such a delicate structure is once disorganized, it is a tremendous task to get it into a position where it can again function normally.”1

Henry Hoagland, 1935