Working Paper: NBER ID: w25246
Authors: Price Fishback; Sebastian Fleitas; Jonathan Rose; Kenneth Snowden
Abstract: Foreclosures led to severe disruptions in home mortgage lending during the recent Great Recession and the Great Depression of the 1930s. It is difficult to measure these impacts in the modern market where origination, funding and servicing are separated within complex lending structures, but during the 1930s local building & loans (B&Ls) combined all three functions. We measure the impact of foreclosures on new mortgage lending using a panel of all B&Ls in 4 states. The foreclosure overhang explains about 30 percent of the drop in new mortgage lending by B&Ls as the housing crisis intensified between 1930 and 1935.
Keywords: foreclosures; mortgage lending; Great Depression; financial frictions; building and loan associations
JEL Codes: E32; E44; G23; N12; N22; R31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increase in foreclosed real estate on a BLA's balance sheet (G21) | Decrease in new mortgage lending by BLAs (G21) |
| Increase in REO as a share of assets (G33) | Decrease in new loans as a percentage relative to assets (G21) |
| Increase in the mean REO share between 1929 and 1935 (N12) | 30% of the drop in the mean new loan share (G21) |
| Direct costs associated with liquidating foreclosed real estate (L85) | Tightening of credit supply during the crisis (E51) |