Читать книгу American Nightmare - Randal O'Toole - Страница 11

5. The New Deal Dream

“To own one’s own home is a physical expression of individualism, of enterprise, of independence, and of the freedom of spirit,” President Herbert Hoover told an audience of 3,700 leaders of the construction, real estate, and lending industries in December 1931. People sing songs about their homes, “but they never sing songs about a pile of rent receipts.”¹ The occasion was a White House Conference on Home Building and Home Ownership in which participants divided into more than 30 committees to discuss specific housing problems and policies.

Hoover’s keynote speech boiled those problems down to two: first, “in what manner can we facilitate the ownership of homes and how can we protect the owners of homes,” and second, “the standards of tenements and apartment dwellings” and “the question of blighted areas and slums in many of our great cities.” Hoover conceded that the tenement problem was important but suggested “that millions of people who dwell in tenements, apartments, and rented rows of solid brick have the aspiration for wider opportunity in ownership of their own homes. To possess one’s own home is the hope and ambition of almost every individual in our country.”²

Conference participants were acutely aware that the real problem was the Depression that had brought the growth of homeownership, along with much of the rest of the economy, to a screeching halt. Annual housing starts fell more than 90 percent from a peak of 937,000 in 1925 to a trough of 93,000 in 1933. Moreover, many of the people who had purchased homes in the 1920s couldn’t afford to keep them: foreclosures rates had increased from 75,000 a year before the Depression to more than 230,000 a year by 1932.³

Rescuing Homeowners

Other than handing out Hoover’s How to Own Your Own Home booklets in the 1920s, the federal government had never before taken any major actions regarding housing. But the Depression led Congress to approve two types of programs. First, a series of laws passed between 1932 and 1938 aimed at helping struggling homebuyers repay their mortgages and, it was hoped, spurring an economic recovery by stimulating home construction. Second, the federal government itself engaged in home construction, including housing projects for low-income families, “new towns” and housing for farmers, and after 1940, housing for defense workers.

Though addressing the two great problems raised by Herbert Hoover, these two types of programs were somewhat opposed to each other. Housing reformers, or housers, wanted to see more public housing for low- and even moderate-income families. But the real estate and homebuilding industries feared that public housing would take away their potential customers: why buy a home if the government will subsidize your rent? Whether or not they helped relieve the Depression, financial programs such as the Federal Housing Administration and the Federal National Mortgage Association (Fannie Mae) would play a huge role in the postwar housing boom. But, due largely to opposition from realtors and homebuilders, prewar public housing programs played a trivial role in the nation’s housing.

The first problem was the growing default rate on home mortgages. In response to the Depression, building and loan associations (which were slowly refashioning themselves as savings and loan associations [S&Ls]) tried to minimize foreclosures on people’s homes. Many allowed debtors to pay just the interest on their loans, which for most home mortgages might be as little as a dollar or two per month. Others would refuse to foreclose as long as patrons showed they were doing their best to work with the lenders. Such lenience naturally stressed the balance sheets of the S&Ls, a number of which closed or were liquidated in 1931.⁴

To help struggling S&Ls, President Hoover persuaded Congress to pass the Federal Home Loan Bank Act in July 1932. This law created 12 federal home loan banks that could lend to S&Ls to carry them through the Depression and, it was hoped, spur an economic recovery. This legislation was the first federal law specifically aimed at helping homebuyers in general, and it set a precedent for the flurry of laws passed when Franklin Roosevelt became president.

Just 70 days after Roosevelt’s inauguration, Congress passed the Home Owners’ Loan Act, which aimed to rescue nonfarm homebuyers who were in default on their mortgages. The law created the Home Owners’ Loan Corporation, which allowed homebuyers to reduce their payments by replacing short-term mortgages with fully amortizing mortgages lasting 15 years (later extended to 25). HOLC would loan up to 80 percent of the appraised value of a home—but since home values had dramatically declined, this loan was sometimes less than the 50 to 75 percent that homebuyers originally borrowed.

About 40 percent of the nation’s homeowners had mortgages, and by 1933, nearly half of them were in default.⁵ HOLC opened offices in 400 cities and received loan applications for loans from nearly 1.9 million people, or somewhere between 80 and 100 percent of the homeowners who were behind on their payments.⁶

The total value of the requested loans was $6.2 billion, but HOLC had the authority to lend only $3 billion. HOLC rejected almost 870,000 applications; close to 20 percent of the rejections were for “inadequate security,” meaning the house wasn’t worth enough to support the loan. The next most important reason was “lack of distress,” meaning the homebuyers were not really behind in their payments. Poor credit was the reason for fewer than 10 percent of rejections. About 15 percent of applications were withdrawn, either because the applicants realized they didn’t qualify or because they successfully negotiated new terms with their original lender.⁷

By 1935, the corporation had refinanced slightly more than a million mortgages, or about 20 percent of all nonfarm residential mortgages in the country. The average loan of just over $3,000 was, on average, 69 percent of the appraised value. HOLC tried to be lenient in administering the loans but ended up having to foreclose on or otherwise acquire nearly 195,000 homes. The highest foreclosure rates of more than 40 percent were in Massachusetts and New York; the lowest of 5 to 15 percent were in the West.⁸

In the end, HOLC helped more than 800,000 families keep their homes. But it isn’t clear that all those families would have lost their homes without government aid. Nonfarm home foreclosures had steadily grown from 68,000 in 1926 to more than 250,000 in 1933, the year HOLC began its operations. Foreclosures then fell to around 230,000 in 1934 and 1935.⁹ But that decline could be partly due to the rise in personal incomes, which had declined from $705 per capita in 1929 to $374 in 1933, then grew to $474 by 1935. Still, it is likely that the number of foreclosures would have been higher without HOLC.

The Home Owners’ Loan Corporation ceased lending in 1935 and continued to collect mortgage payments until 1951 when it sold its remaining assets and shut down. Moreover, payments from home-buyers and other revenues covered all its costs, including losses on foreclosed properties and interest on bonds sold to finance the loan program, with $14 million left over to provide a tiny profit. Few federal agencies can claim that they helped hundreds of thousands of people, sunsetted as scheduled, and earned a profit besides.

Meanwhile, Congress passed the Housing Act of 1934 creating the Federal Savings and Loan Insurance Corporation, which insured S&L deposits. This act was necessary for S&Ls to compete for depositors with banks, whose deposits had been insured by the Banking Act of 1933. The law also contributed to the “bureaucratization of thrift,” that is, the transition of S&Ls “from cozy clubs of shareholders” to institutions not much more personalized than commercial banks.¹⁰

More important, the 1934 Housing Act also created the Federal Housing Administration, which offered to insure home mortgages just as the federal government insured deposits in banks and S&Ls. Like the Home Owners’ Loan Corporation, the FHA chose to emphasize long-term amortizing mortgages with relatively low down payments.

Congress created the Federal National Mortgage Association, or Fannie Mae, in 1938. Fannie Mae bought (and buys) mortgage loans from banks and other lenders, effectively increasing the amount of money available for loans. This system works because financial institutions must keep funds in reserve to repay depositors and investors when they lend money. If the reserve requirement is 10 percent, for example, an S&L that receives a deposit of $10,000 can lend only $9,000. But if Fannie Mae buys that mortgage from the S&L, the S&L then has another $9,000 it can lend. Thus, instead of providing the funds for just one loan, the initial deposit can generate the funds for several.

Public Housing

Government intervention in the housing market was small in the United States compared with other countries. Germany and Britain, for example, each built more than 1 million units of publicly assisted housing in the 1920s; one out of five residents of the Netherlands also lived in such housing.¹¹ American housers, led by a group called the Labor Housing Conference and its executive secretary Catherine Bauer—who had studied but never practiced architecture—looked on these programs with envy.

Like Edith Abbott, who preceded her as a leader of the housing reform movement, Bauer questioned whether homeownership made sense for working-class families. Her 1934 book Modern Housing argued that 19th-century cities had failed to provide decent housing and that “modern housing,” meaning public housing, could be found only in Europe.¹² But she closed her eyes to the cottages and bungalows that workers built for themselves and then improved, incrementally, over the years between 1900 and 1930. “After 1910,” says historian Joseph Bigott, housers such as Abbott and Bauer “seldom went into the field with open minds to confront the built environment. Instead, they become predictable, relying on old assumptions that showed little respect for the modest gains that altered substantially the character of modern society.”¹³