The Home Owners Refinancing Act, signed into law on June 13, 1933, established the Home Owners' Loan Corp. to refinance non-farm home mortgages. It was one of a flurry of measures pushed through Congress in the first 100 days of Franklin D. Roosevelt's first presidential term, designed to shore up public confidence in America's banking system and to provide relief for those hit hard by the Great Depression.
Boon to Homeowners
The HOLC, a major component of Roosevelt's New Deal, helped to make the dream of owning a home a reality for thousands of Americans, a dream that had proved elusive up until that time. Prior to passage of the Home Owners Refinancing Act, only about 40 percent of all Americans owned their own home. Mortgage terms before the 1929 collapse of the stock market were very tough to meet, routinely requiring down payments of roughly 35 percent and allowing only five to 10 years for repayment of the loan. The depression that followed made things even more difficult for prospective homeowners.
Banks, hard hit by the economic collapse, were able to issue only 864 mortgages in 1933, a dizzyingly precipitous drop from nearly 5,800 approved in 1928. Roosevelt and Congress knew that action to remedy the situation was badly needed, and the solution they jointly agreed upon was the Home Owners Refinancing Act. The HOLC was given start-up funding of $200 million and was also authorized to issue up to $2 billion in tax-exempt bonds.
HOLC to the Rescue
With this huge infusion of cash, the HOLC was able to offer financing of up to 80 percent of a house's assessed valuation. It also provided refinancing for hundreds of homeowners who otherwise would have lost their homes because they were unable to meet the payments previously agreed upon. The resultant shakeup in the home financing market forever changed the U.S. mortgage banking industry. Interest rates available through the HOLC dropped as low as 5 percent, repayment terms stretched up to 25 years and insurance became available, through arrangements the HOLC made with the Federal Savings and Loan Insurance Corp. and the Federal Housing Authority.
An Example for Others
While many felt that the HOLC would soon be awash in a sea of foreclosures because of what was seen as overly generous mortgage terms, the dire predictions failed to materialize. The HOLC experienced no greater incidence of foreclosure than the banks that set far more stringent terms for their mortgage loans. Although the HOLC was only lending until 1936 or so, it demonstrated that a kinder, gentler approach to mortgage banking could not only succeed but prosper.
The HOLC's overall impact on the mortgage market was a positive one, but in later years it has come under fire for maintaining discriminatory lending practices, including redlining. Examination of the loans that the HOLC granted during its short life indicates that very few loans were made on housing in minority neighborhoods.
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