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The New Deal and the origins of the modern American real estate loan contract

Jonathan D. Rose and Kenneth Snowden ()

Explorations in Economic History, 2013, vol. 50, issue 4, 548-566

Abstract: The fully amortized mortgage loan contract is an important instance of financial innovation in the U.S. residential mortgage market. We examine the adoption of this contract from the 1880s to the 1930s by building and loan (B&L) associations, the nation's most important institutional home mortgage lenders at the time. A chain of complementary innovations by B&Ls gradually reduced the costs of adopting amortization, supporting moderate use by the 1920s. During the crisis of the 1930s, the poor performance of the traditional B&L loan contract radically increased the benefit of adoption, as borrowers demanded the new contract. The adoption examined here occurred primarily in the conventional loan market because B&Ls, unlike other lenders, generally avoided the use of the new Federal Housing Administration insurance program. The New Deal may have had more impact through new federal savings and loan charters, which incorporated many of the complementary innovations that supported the new form of lending.

Keywords: Real estate finance; Mortgage loan contracts; Building and loan associations; New Deal; Great Depression (search for similar items in EconPapers)
JEL-codes: N21 O33 G21 (search for similar items in EconPapers)
Date: 2013
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Chapter: The New Deal and the Origins of the Modern American Real Estate Loan Contract (2012)
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DOI: 10.1016/j.eeh.2013.06.001

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