How they handled it in the 1930's: The "H.O.L.C"

[Riick]

In the 1930's (and earlier), amortizing mortgages were virtually non-existent.
You would get a mortgage for 3 or 5 year term, and then you needed to refinance. (Cash down requirements were in the 30-40% range - and higher.)

But in 1933+/- some 35% of the Banks & some 13% of the S&Ls -- disappeared; bankrupt.
Those left were impaired, and loath to lend any money, especially on homes that were going down in value.....
There was essentially nowhere to get refinancing, so people were being foreclosed upon when the note came due.

Read HERE how it was handled "The Homeowners Loan Corporation"

BTW... (edit-2) today "HOLC-II" may be coming into existence --- See HERE and compare with proposals by current administration (PAULSON speaks)

edit-1: HERE is a whole book on the HOLC - the section on appraising has some interesting tidbits (see download #4: pages 41-48)
.

 

[Workbox]

Many similarities to what is happening now, just add the Skippy and AMC in a couple part of some sentences and it would be as if it is today. They mention all that we have been cover here on the AF for years. I like the part in page 5, paragraph 3. Wow, so true now as it is then.

 

[Cigar]

If they had held to those original appraisal standards the world wouldn't be in the economic mess it is in today, there could have been no leveraged speculation in real property.

..... the Corporation stated that appraisals would be based on three factors, weighted equally: "(1) the market value at the time of appraisal; (2) the cost of a similar lot at the time of the appraisal, plus the reproduction cost of the building, less depreciation; and (3) the value of the premises as arrived at by capitalizing the monthly reasonable rental value of the premises over a period of the past ten years."

 

[Riick]

Interest only loans, balloon payments, assuming endlessly rising prices,
& belief in availability of the next “ReFi.” It does sound familiar, doesn't it, though worse than today: ​

The amount of annual mortgage lending dropped by about 80 percent between
1930 and 1933, from $3.4 billion to $663 million. Private residential construction
in the same period dropped over 80 percent. States were passing moratoriums on
foreclosures. The average borrower that HOLC eventually refinanced was two
years delinquent on the original mortgage and about three years behind on
property taxes —and, at least according to one account, “some citizens even
formed lynching parties for sheriffs attempting to conduct foreclosure sales.”​

Always the need to deal with human nature; these peple were very pragmatic:​

If the loan were granted, the fee was paid by the borrower; but if not, the Corporation paid it to avoid adding to the burden of a person already in distress and to give no inducement to appraisers to encourage the making of a loan merely to obtain the fee. The appraisal report on each case was reviewed once or twice by a permanent, full-time HOLC appraiser, and some general field supervision of the local appraisers was exercised.

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[Riick]

Just couldn't resist:

HOLC did mortgages on homes up to $20,000

Via THIS inflation calculator, using 1934 and 2007, that $20,000 figure is equal to $317,159

 

[Couch Potato]

Interesting calculator. Under its measurement of inflation gasoline which peaked in 1981 at $1.66 translates to $4.13 in 2007. So given inflation has continued we are still not at an all time high for gasoline.

 

[Riick]

Takeover of Fannie today... which essentially was successor to The Homeowners Loan Corporation -- poetic justice?

 

[Deleted member 77547]

As a side note. During the depression, Sears would mortgage their Sears Catalog homes. After the depression hit and people started to foreclose, Sears was put in a predicament. They could foreclose on homes they didn't want and couldn't sell but they would also lose future catalog business from those people they displaced and sour their public image by throwing people out in the street. As I understand it, they forgave all those loans and allowed the people to keep their home. Those people were likely catalog customers for life.

 

[Karl]

Only thing we have now, that we did NOT have in the 30's is plastic. Watch for them to be asking for assistance soon, as many holders of plastic, have stopped paying the minimum payment.

Buckle up!!! The ride down is far from over!!!

 

[Riick]

Up until now they've been saying that this is the worst RE market since the 30's.
Now, with this takeover... excuse me, some are calling it a bailout, they're leaving off "since the 30's".

History: Fannie, Freddie Seized by Federal Government

September 7 will now be remembered as the day the U.S. government took over the mortgage market. This is no longer the worst mortgage crisis since the Great Depression; this is the worst mortgage crisis, period. It’s also the end of an era. The U.S. Treasury on Sunday announced a takeover of both Fannie Mae and Freddie Mac, saying that such drastic measures were needed to protect financial markets and the U.S. housing market.

and the Chinese, and the Arabs, and the.....