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
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
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.
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
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