Working Paper: NBER ID: w16244
Authors: Kenneth A. Snowden
Abstract: Looking back to the 1930s provides the opportunity to examine one severe mortgage crisis as we live through another. This paper examines the development of the residential mortgage market during the 1920s, the institutional disruptions that occurred in the 1930s and the policy response of federal and state governments. The crisis reshaped the structure and development of the residential mortgage market and led to a postwar system in which portfolio lenders dominated both local and interregional markets. Some pre-1930 innovations--mortgage insurance and high-leverage, affordable loans--were written into federal programs and became part of the new system. But early experiments and proposals for securitization did not survive the 1930s and the implementation of this innovation was delayed for forty years.
Keywords: No keywords provided
JEL Codes: E32; G01; G18; G21; N1; N12; N62; R51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Rapid growth in residential mortgage debt in the 1920s (G21) | mortgage crisis in the 1930s (G01) |
| Financial innovations such as high-leverage loans and private mortgage insurance (G21) | shaping of the mortgage market (G21) |
| Financial innovations such as high-leverage loans and private mortgage insurance (G21) | institutional failures during the crisis (H12) |
| Federal responses (e.g., establishment of HOLC) (G28) | stabilization of the mortgage market (G21) |
| Federal responses (e.g., establishment of HOLC) (G28) | restoration of balance sheets of major lenders (G21) |