Courtesy Kirwan Institute This 1937 Home Owners' Loan Corp. map of Dallas (laid over a current map for reference) shows who could get a loan, and who couldn't.

Courtesy Kirwan Institute
This 1937 Home Owners’ Loan Corp. map of Dallas shows who could get a loan, and who couldn’t.

If the lending practices of the 1940s were still in place, would you have been able to get the mortgage you currently have? In some neighborhoods in Dallas, you’d be fairly confident in saying yes. But in others, the answer might surprise you.

A week ago, I was able to attend a workshop hosted by Children’s Medical Center and Ohio State’s Kirwan Institute about (in part) lending practices in the post-Depression era. Many of these practices openly continued until 1968, when they were forbidden by law. But they continue to shape and affect some neighborhoods even today.

But first, some history on home ownership prior to the Depression. Prior to the FDR era, home finance was not the standard 80/20 30-year mortgage we are all familiar with. Home ownership tended to be for the wealthy, or those who could afford variable rates, very high down payments and short terms. Many renegotiated their mortgage every year. Many also were faced with a large balloon payment at the end of the loan.

Partly in a bid to create steady work for construction sector and partly to address pressure placed on the housing market by banks reselling foreclosures (nearly 10 percent of all homes were in foreclosure at the height of the Depression and around 250,000 homes per year were foreclosed upon between 1931 and 1935), the federal government stepped in to modify the business of financing a home.

One of the results of that intervention was the Home Owners Refinancing Act of 1933, which created the Home Owners’ Loan Corporation, or HOLC. The HOLC raised funds through government-backed bonds, purchased the defaulted mortgages and then reinstated them. The agency also changed the terms for mortgages entirely, creating the mortgage as we know it now – fully amortized mortgages that were fixed rate and long term. (more…)