1933: The New Deal transforms the American mortgage system | national

ByShannon J. Cortes

Jan 7, 2022

As part of the New Deal, the Homeowners Loans Act was enacted in 1933 and has had a huge impact on mortgage management. The purpose of the Home Owners’ Loan Act was to “provide emergency mortgage debt assistance, refinance mortgages, extend assistance to homeowners they occupy and who are unable to afford mortgage debt. to amortize their debt elsewhere ”.

This act also marked the beginning of redness, the process of color coding cards to indicate where it was “safe” to insure mortgages, often leaving out predominantly black neighborhoods. Additionally, the Federal Housing Administration’s “Underwriting Handbook” advised freeway installations as a reasonable way to separate black and white neighborhoods.

The Home Owners ‘Loan Act also required the creation of the Home Owners’ Loan Corporation (HOLC), which was tasked with relieving banking and financial institutions and Americans who were unable to afford the costs of their housing. To provide this relief, HOLC would buy distressed mortgages and in return give banks and other lien holders government-insured bonds. Homeowners, on the other hand, got new mortgages with much longer loan terms and lower interest rates, which helped them pay the payments better.