Home Owners Loan Act

[Moe Bedard]

The Home Owners Loan Act established a corporation that refinanced one of every five mortgages on urban private residences. Other bills passed during the Hundred Days, as well as subsequent legislation provided aid for the unemployed and the working poor and attacked the problems of agriculture and business. This also helped establish the " Home Owners Loan Corporation" which would over see and distribute the funds to homeowners.

On Inaugural Day, March 4, 1933, President Roosevelt declared that “the only thing we have to fear is fear itself.” The next day he halted trading in gold and declared a national bank holiday. On March 9 he submitted to Congress an Emergency Banking Bill authorizing government to strengthen, reorganize, and reopen solvent banks. The House passed the bill by acclamation, sight unseen, after only 38 minutes of debate. That night the Senate passed it unamended, 73 votes to 7. On March 12 Roosevelt announced that, on the following day, sound banks would begin to reopen. On March 13, deposits exceeded withdrawals in the first reopened banks. “Capitalism was saved in eight days,” Raymond Moley, a member of the president's famous “brain trust,” later observed.

In signing the "Home Owners Loan Act of 1933, President Roosevelt declared, " I feel that we have taken another important step toward the ending of deflation which was rapidly depriving many millions of farm and home owners from the title and equity to their property."

Its purpose was to refinance homes to prevent foreclosure. It was usually used to extend loans from shorter, expensive payments of 15 year loans to lower payments of 30 year loans. Through its work it granted long term mortgages to over a million people facing the loss of their homes. Home Owners Loan Corporation and its funds were only applicable to nonfarm homes. They also bailed out mortgage-holding banks.
The Home Owners Loan Act was inacted to supplement the Home Loan Bank Act that was inacted the year before. Under its provisions the Federal Home Loan Bank Board created a new agency called the "Home Owners Loan Corporation". The agency was given capital of $200,000,000 from the Treasury and the power to issue bonds of up to $3,000,000,000 to refinance first mortgages on homes valued up to $20,000.

The Home Owners Loan Act restored confidence where all had been lost and saved the financial system. Roosevelt followed it up with legislation that did actually put the banking structure on a solid footing. The Glass-Steagall Act of 1933 separated commercial from investment banking and created the Federal Deposit Corporation to guarantee small deposits. The Banking Act of 1935 strengthened the Federal Reserve System, the first major improvement since its birth in 1913.

The Act also provided for th establishment of the federal savings and loan associations which would join with the Federal Home Loan Bank System and enjoy the benefits of government aid through the investments of federal funds.
By June of 1936, the Home Loan Corporation operation had been ceased. The agency, in that short time, refinanced over 1,000,000 mortgages for a total of $3,100,000,000.

Unfortunately the Act was deemed a failure because many homeowners could not pay their mortgages.