Financial History Issue 113 (Spring 2015) | Page 38
Financing the American Dream
continued from page 11
payments spread over 15 years and no balloon payment when the loan matured, the
homeowner was spared the pain of losing
his home to foreclosure.
According to Fishback, Rose and
Snowden, “Although long-term amortized
loans were offered in some corners of the
housing finance market before 1930, in
just a few short years the HOLC gave its
borrowers access to these loans, part of
a wholesale change in lending practices
across the country.” The B&Ls that survived
the Depression discontinued share accumulation plans in favor of direct reduction
loans that reduced the principal owed every
time a borrower made a payment. These
surviving firms became the basis for the
modern savings and loan industry.
In addition to the HOLC, which was
designed to be a temporary measure of
relief, the federal government established
the Federal Housing Administration
(FHA) to provide mortgage insurance.
The FHA adopted the HOLC’s fixed-rate,
long-term, fully-amortized mortgages and
expanded the term to 20 years. In 1948, the
FHA, in an attempt to stimulate construction, increased the maximum term to 30
years and ushered in the us HوH