The Anatomy of a Residential Mortgage Crisis: A Look Back to the 1930s
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.
This paper has benefited from the comments of participants at the Panic of 2008 conference held at George Washington Law School. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.
"The Anatomy Of A Residential Mortgage Crisis: A Look Back To The 1930s", in L. Mitchell (ed.) The Panic of 2008: Causes, Consequences and Proposals for Reform.