Home Owners' Loan Corporation
|Founded||June 13, 1933|
|Defunct||February 4, 1954|
Number of employees
|20,000 (1935) and declined to less than 500 (1950)|
The Home Owners' Loan Corporation (HOLC) was a government-sponsored corporation created as part of the New Deal. The corporation was established in 1933 by the Home Owners' Loan Corporation Act under the leadership of President Franklin D. Roosevelt. Its purpose was to refinance home mortgages currently in default to prevent foreclosure, as well as to expand home buying opportunities.
Since Kenneth T. Jackson's work in the 1980s, scholars have increasingly portrayed HOLC as a key promoter of redlining and a driver of racial residential segregation and racial wealth inequality in the United States. A 2021 paper by Price V. Fishback et al. has cast serious doubt on this interpretation.[non-primary source needed]
The HOLC issued bonds and then used the bonds to purchase mortgage loans from lenders. The loans purchased were for homeowners who were having problems making the payments on their mortgage loans "through no fault of their own". The HOLC refinanced the loans for the borrowers. Many of the lenders gained from selling the loans because the HOLC bought the loans by offering a value of bonds equal to the amount of principal owed by the borrower, plus unpaid interest on the loan, plus taxes that the lender paid on the property. This value of the loan was the amount of the loan that was refinanced for the borrower. The borrower gained because they were offered a loan with a longer time frame at a lower interest rate. It was rare to reduce the amount of principal owed.
The nature of the loans
The typical HOLC loan before 1940 was an amortized 15-year loan, compared with the 3–6 year mortgages offered by commercial banks and the 10–12 year loans offered by Building and Loans in the 1920s. The interest rate on the original HOLC loans was 5 percent at a time when most mortgage loans were being offered at an interest rate of 6 to 8 percent. In 1939 the corporation lowered the interest rate to 4 1/2 percent for a large group of borrowers. The HOLC loans were typically amortizing, so that there were equal payments each month on the loan.
This contrasts with interest-only loans in the 1920s in which the borrower would make payments equal to the interest on the loan each month until the end of the loan and then repay the principal (the amount borrowed) at the end of the loan. Until the early 1930s borrowers often paid the principal owed by taking out a new loan.
With the Great Depression of the 1930s, it became very difficult to borrow and many borrowers could not repay the principal owed at the end of the loan. It also contrasts with loans at Building and Loans (B&L) in the 1920s, which often lasted 10 to 12 years. The B&L loans were direct reduction loans in which some payment of the principal owed was made each month; therefore, the length of the loan would not change unless the borrower failed to make payments. The direct reduction loan has become the most common type of American mortgage.
Loan repayments and foreclosure policies
Between 1933 and 1935, the HOLC made slightly more than one million loans. At that point it stopped making new loans and then focused on the repayments of the loans. The typical borrower whose loan was refinanced by the HOLC was more than 2 years behind on payments of the loan and more than 2 years behind on making tax payments on the property. The HOLC eventually foreclosed on 20 percent of the loans that it refinanced. It tended to wait until the borrower had failed to make payments on the loan for more than a year before it foreclosed on the loan. When the HOLC foreclosed, it typically refurbished the home. In many cases it rented out the home until it could be resold. The HOLC tried to avoid selling too many homes quickly to avoid having negative effects on housing prices. Ultimately, more than 800,000 people repaid their HOLC loans, and many repaid them early enough. HOLC officially ceased operations in 1951, when its last assets were sold to private lenders. HOLC was only applicable to nonfarm homes, worth less than $20,000. HOLC also assisted mortgage lenders by refinancing problematic loans and increasing the institutions liquidity. When its last assets were sold in 1951, HOLC turned a small profit.
HOLC is often cited as the originator of mortgage redlining. HOLC maps generated during the 1930s to assess credit-worthiness were color-coded by mortgage security risk, with majority African-American areas disproportionately likely to be marked in red indicating designation as "hazardous." These maps were made as part of HOLC's City Survey project that ran from late 1935 until 1940. Perhaps ironically, HOLC had issued refinancing loans to African American homeowners in its initial "rescue" phase before it started making its redlining maps. The racist attitudes and language found in HOLC appraisal sheets and Residential Security Maps created by the HOLC gave federal support to real-estate practices that helped segregate American housing throughout the 20th century.
The effects of redlining, as noted in HOLC maps, endures to the present time. A study released in 2018 found that 74 percent of neighborhoods that HOLC graded as high-risk or "hazardous" are low-to-moderate income neighborhoods today, while 64 percent of the neighborhoods graded "hazardous" are minority neighborhoods today. “It’s as if some of these places have been trapped in the past, locking neighborhoods into concentrated poverty,” said Jason Richardson, director of research at the NCRC, a consumer advocacy group. Another study, published in 2017, found that areas classified as high-risk on HOLC maps became increasingly segregated by race during the next 30–35 years, and suffered long-run declines in home ownership, house values, and credit scores.
A 2020 study in the American Sociological Review found that HOLC led to substantial and persistent increases in racial residential segregation.
According to a paper by economic historian Price V. Fishback and three co-authors, issued in 2021, the blame placed on HOLC is misplaced. Far from "ironically" issuing a few loans to African-Americans in an "initial phase" and then becoming a major promoter of redlining, HOLC actually refinanced mortgage loans for African-Americans in near proportion to the share of African-American homeowners. The pattern of loans had basically no relationship to the "redlining" maps because the program to create the maps did not even begin until after 90% of HOLC refinancing agreements had already been concluded. The HOLC did share their maps with the other major New Deal housing program, the Federal Housing Administration, but FHA already had its own discriminatory program of systematically rating urban neighborhoods and there is little evidence that the HOLC maps influenced it. As for private lenders, though Kenneth T. Jackson's claim that they relied on the HOLC's maps to implement their own discriminatory practices has been widely repeated, the evidence is weak that private lenders even had access to the maps. By contrast, it is well documented that private lenders understood which neighborhoods the FHA favored and disfavored; suburban greenfield developers often explicitly advertised the FHA-insurability of their properties in ads for prospective buyers. Redlining was an established practice in the real estate industry before the federal government had any significant role in it; to the extent that any federal agency is to blame for perpetuating the practice, it is the Federal Housing Administration and not the Home Owners' Loan Corporation.
HOLC was established as an emergency agency under Federal Home Loan Bank Board (FHLBB) supervision by the Home Owners' Loan Act of 1933, June 13, 1933. It was transferred with FHLBB and its components to the Federal Loan Agency by Reorganization Plan No. I of 1939, effective July 1, 1939. It was assigned with other components of abolished FHLBB to the Federal Home Loan Bank Administration (FHLBA), National Housing Agency, by EO 9070, February 24, 1942. Its board of directors was abolished by Reorganization Plan No. 3 of 1947, effective July 27, 1947, and HOLC was assigned, for purposes of liquidation, to the Home Loan Bank Board within the Housing and Home Finance Agency. It was terminated by order of Home Loan Bank Board Secretary, effective February 3, 1954, pursuant to an act of June 30, 1953 (67 Stat. 121).
- "Renovation of the Home Owners Loan Corporation (HOLC) Building". John C. Grimberg Company. Archived from the original on January 24, 2013. Retrieved December 23, 2010.
- First Annual Report of the Federal Home Loan Bank Board
- Faber, Jacob W. (2020-08-21). "We Built This: Consequences of New Deal Era Intervention in America's Racial Geography". American Sociological Review. 85 (5): 739–775. doi:10.1177/0003122420948464. ISSN 0003-1224.
- Fishback, Price; Rose, Jonathan; Snowden, Kenneth; Storrs, Thomas (2021). "New Evidence on Redlining by Federal Housing Programs in the 1930s". doi:10.3386/w29244. Cite journal requires
- Harriss, C. Lowell (1951). "History and Policies of the Home Owners' Loan Corporation". NBER (1st ed.). New York: National Bureau of Economic Research: 1.
- Fishback, Price; Rose, Jonathan; Snowden, Kenneth (October 2013). Well Worth Saving: How the New Deal Safeguarded Home Ownership (1st ed.). Chicago: University of Chicago Press. ISBN 978-0226082448.
- Crossney and Bartelt 2005 Urban Geography article Archived 2012-07-09 at archive.today
- "Crossney and Bartelt 2006 Housing Policy Debate" (PDF). Archived from the original (PDF) on 2008-04-14. Retrieved 2008-04-12.
- "In U.S. Cities, The Health Effects Of Past Housing Discrimination Are Plain To See". NPR.org. Retrieved 2020-12-13.
- "Racist housing policies have created some oppressively hot neighborhoods". Science. 2020-09-02. Retrieved 2020-12-13.
- Connolly, N. D. B.; Winling, LaDale; Nelson, Robert K.; Marciano, Richard (2018-01-19), "Mapping inequality", The Routledge Companion to Spatial History, Routledge, pp. 502–524, doi:10.4324/9781315099781-29, ISBN 9781315099781
- Nelson, Robert K. "Mapping Inequality". Mapping Inequality. University of Richmond.
- Michney, Todd M (2021-05-07). "How the City Survey's Redlining Maps Were Made: A Closer Look at HOLC's Mortgagee Rehabilitation Division". Journal of Planning History. doi:10.1177/15385132211013361. S2CID 236560695.
- Michney, Todd M; Winling, LaDale (2020-01-01). "New Perspectives on New Deal Housing Policy: Explicating and Mapping HOLC Loans to African Americans". Journal of Urban History. 46 (1): 150–180. doi:10.1177/0096144218819429. ISSN 0096-1442. S2CID 149628183.
- Freund, David M.P. (2007). Colored Property: State Policy and White Racial Politics in Suburban America. Chicago: University of Chicago Press. ISBN 978-0-226-26276-5.
- Mitchell, Bruce (2018-03-20). "HOLC "redlining" maps: The persistent structure of segregation and economic inequality". National Community Reinvestment Coalition.
- Jan, Tracy. "Redlining was banned 50 years ago. It's still hurting minorities today". Washington Post.
- Aaronson, Daniel. "The Effects of the 1930s Holc "Redlining" Maps". FRB of Chicago Working Paper No. WP-2017-12.
- "Redlining Didn't Happen Quite the Way We Thought It Did". 21 September 2021.
- "Records of the Federal Home Loan Bank Board [FHLBB]". National Archives. 2016-08-15. Retrieved 2017-10-24.
- Brennana, John F. "The Impact of Depression-era Homeowners' Loan Corporation Lending in Greater Cleveland, Ohio," Urban Geography, (2015) 36#1 pp: 1-28.
- Price Fishback, Jonathan Rose, and Kenneth Snowden, Well Worth Saving: How the New Deal Safeguarded Home Ownership. Chicago: University of Chicago Press, 2013.
- Records of the Home Owners' Loan Corporation from the National Archives and Records Administration
- Security maps of the Home Owners' Loan Corporation for several U.S. cities
- Mapping Inequality: Redlining in New Deal America
- Annual reports of the Home Owners' Loan Corporation from 1933 through 1952, included in reports of the Federal Home Loan Bank Board