FDR’s Alphabet Soup

Records from the Great Depression

Cath Madden Trindle

HOLC - Home Owner's Loan Corporation

 (1933-1951) RG 3.6.3  

FHA (Federal Housing Administration)  

(1934-1965 absorbed into HUD) RG 31

 Farm home of Elof Hansen owner of land in Yuba County, California.  

Prior to the Depression fewer than 40% of U.S. households owned their own homes.   Mortgages were not consumer friendly.  For example, an 80% mortgage meant making a down payment of 80% of the purchase price. The typical term was 3 to 5 years with a balloon payment at the end.  Available funding was limited to 50% of the home’s value.

As the depression deepened, many households were unable to come up with the required balloon payments.  The financial turmoil made it difficult to find a bank willing to extend a new loan.  Families began to lose their homes.

In an effort to keep people in their homes, the Homeowner’s Refinancing Act established the Home Owner’s Loan Corporation (HOLC).  When he signed the act on 13 Jun 1933, Franklin D. Roosevelt stated “The Act extends the same principle of relief to home owners as we have already extended to farm owners. Furthermore, the Act extends this relief not only to people who have borrowed money on their homes but also to their mortgage creditors.”

The HOLC issued bonds and then used the bonds to purchase the mortgage loans of  home owners who were having problems making the payments “through no fault of their own.” The loans were then refinanced for the buyers.  Non-farm homes worth less than $20,000 were eligible for the modifications.  Typical borrowers were more than two years behind on both mortgage and property tax payments.

Between 1933 and 1935 the HOLC made just over one million loans.  At that point they stopped making loans focused on repayments.  Eventually about 20% of the loans failed.  Borrowers who were more than a year behind on payments to the HOLC faced foreclosure.  Homes that were repossessed were refurbished and rented out until they could be resold.  More than 800,000 of the loans were repaid, many early.  In 1951 HOLC closed operations and sold the last of its assets to private lenders.  The nearly thirty year operation turned a small profit.

As new loans from the HOLC ended, the Federal Housing Administration, which had been created by passage of the National Housing Act (48 Stat. 1246) on 27 Jun 1934 stepped in.  The focus of the FHA was to stimulate the growth of the building industry.  The FHA promised a stable future by providing the funds necessary to construct low-income housing.  They also encouraged residential repair and modernization.

 The FHA sought to stimulate homeownership by providing mortgage insurance and regulating interest rates. Over time, the agency has contributed to a dramatic increase in the number of homeowners, across a diverse income-scale. Early programs especially increased the market for single family homes.

Starting in 1934 the FHA instituted fifteen year mortgages, with a high loan to value ratio (80% to 90%), low interest rates and fixed monthly payments. The term soon increased to thirty years.

The FHA began the practice of determining whether borrowers were likely to be able to repay the loans, and basing eligibility on that. In the past loans had been made according to whether the borrower was “known” by the lender.  Additionally the FHA set quality standards that had to be met in order to qualify for a loan. As commercial lenders eased back into the lending market, they found it necessary to be competitive with the FHA terms and conditions.

Special housing initiatives for veterans during and post WWII provided help for veterans and their families. The Section 608 program provided mortgage insurance to construct housing for war workers during the war, and then for rental properties for returning veterans. Designed to counter the postwar housing deficit by providing lenders with a federal guarantee, Section 608 provided insurance for as much as 90% of the mortgage value on rental housing projects. By the end of 1958, the FHA had enabled nearly five million families to own homes and helped more than 22 million to improve their properties.

Programs and policies of the HOLC and FHA were not without controversy.  Red-lining, was one of the biggest. This was the process of assessing areas and deciding where loans would be made. Areas were assigned a letter grade of suitability ranging from A to D. Ultimately, this practice led to discrimination as many minority areas in urban areas received “Ds” and therefore were ineligible for insured mortgages.  These areas became more and more blighted.  Adjoining areas might also receive a lower grade unless they created barriers separating them from their depressed neighbors. This led to deepening ghettos.  While this practice did not originate with the FHA, it was used.  Another complaint was that it was easier to get a mortgage for a new home than to get a loan to repair an existing home.  Both issues led to the deterioration of the inner cities and the spread of the population to the suburbs. Check the bibliography below for links to redlining articles and maps.

A scandal developed in 1950 following years of abuse by unscrupulous builders who received mortgages through the Section 608 program.   The builder would procure a high mortgage under the program then build it for far less than the loan amount, often with inferior materials and workmanship.  The builder would then sell the property and transfer the mortgage to the new owner, pocketing the difference. The lack of oversight caused the program to be terminated in 1954.

HUD, the Department of Housing and Urban Development, which was established in 1965 (79 Stat. 667) absorbed the FHA and its mission.  On the department’s website you will find links to state offices and other useful information.  By clicking on Research (under Resources on the menu bar) you are taken to the HUD user website.  This site provides bibliographies and other research tools for finding information about projects.  While publications date only from 1969, some discuss projects from earlier years.

Like other “Alphabet Soup” departments, the HOLC and FHA touched the lives of many.  Look for loan documents in family papers and county Deed and Mortgage Books.  National Archives holdings are found mainly at the national level.  Search OPA (see below) for records, maps and  other records relating to the agencies. Check local newspapers of the era for references to programs available in the area. Search for information on “Projects” your family might have lived in.  Check the Online Archive of California (FHA)  (HOLC) for records held in California repositories.

Publications Videos and More

§  Annual Reports HOLC  Look for other government documents on this website.

§  Home Owner’s Loan Corporation – Wikipedia

§  How Stuff Works – History of Mortgages

§  OPA – Better Housing News Flashes  

§  FHA – Wikipedia

§  Miller, Peter, The FHA’s First Twenty-five Years

§  Racial Content of FHA’s Underwriting Practices

§  Federal Housing Administration Timeline

§  Redlining California

§  Redline Maps of California at UC Berkeley

§  Finding Aids to Materials in the National Archives

§  Kathleen E. Riley and Charlotte M. Ashby, comps., “Preliminary Inventory of the Records of the Federal Housing Administration,” NC 111 (1965).

§  Charlotte Munchmeyer, comp., Preliminary Inventory of the Cartographic Records of the Federal Housing Administration, PI 45 (1952).

Originally published in the CSGA Newsletter Nov-Dec 2013