[Hamucevasiop]

We’ve largely forgotten that Herbert Hoover, as secretary of commerce, initiated the first major Washington campaign to boost homeownership. His motivation was the 1920 census, which had revealed a small dip in ownership rates since 1910—from 45.9 percent to 45.6 percent of all households. The downturn was likely the result of a temporary diversion of resources away from housing during World War I. For Hoover, though, the apocalypse seemed nigh. “Nothing is worse than increased tenancy and landlordism,” he warned—though surely many things were worse. With little justification, he predicted that in just a few decades, three-quarters of all Americans would be renters. The press echoed the urgency. “The nation’s stability [is] being undermined,” the New York Times editorialized. “The masses [are] losing their struggle for a better life.”...in 1922 Hoover launched the Own Your Own Home campaign...Hoover also called for new rules that would let nationally chartered banks devote a greater share of lending to residential properties. Congress responded in 1927, and the freed-up banks dived into the market, despite signs that it was overheating. The great national effort seemed to pay off. From mid-1927 to mid-1929, national banks’ mortgage lending increased 45 percent. ..Soon after the October 1929 Wall Street crash, the housing market began to collapse, just as in today’s crisis, though the reasons were slightly different: panicked depositors withdrew money from their accounts, prompting bank runs; the banks ran out of capital and stopped making loans; and the mortgage market seized up. Homeowners, who in that era typically had short-term mortgages that required several refinancings before being paid off, suddenly couldn’t find new loans. Defaults exploded—by 1933, some 1,000 homes were foreclosing every day... Housing starts jumped from about 250,000 new homes a year in the early 1920s to nearly 600,000 after the housing campaign—before slumping more than 80 percent after the crash. Construction jobs fell 70 percent from 1929 to 1933... feds responded to the crisis with the Home Owners’ Loan Corporation (HOLC)...its purchase of bad loans never revived mortgage lending, which stayed flat for the rest of the decade. The nation’s economic fundamentals were so lousy that little demand existed for new home loans...The Depression-era federal government created many other institutions to fix flaws in the mortgage market: the Federal Home Loan Bank system to provide a stable source of funds for banks; the Federal Housing Administration (FHA) to insure mortgages; the Federal National Mortgage Association (later known as Fannie Mae) to purchase those insured mortgages; and the Federal Savings and Loan Insurance Corporation to prevent future bank runs...With the feds footing a big part of the bill, the nation’s long-moribund mortgage market came alive, more than doubling in volume between 1945 and 1950. By 1949, more than half of American households owned homes, and 40 percent of the new mortgages were government-subsidized...Under pressure to keep meeting housing demand, the government began loosening its mortgage-lending standards—cutting the size of required down payments, approving loans with higher ratios of payments to income, and extending the terms of mortgages.

By attracting riskier home buyers, these moves provoked a surge in foreclosures on government-backed mortgages. The failure rate on FHA-insured loans spiked fivefold from 1950 to 1960, according to a 1970 ...while the failure rate on mortgages made through the Veterans Administration nearly doubled over the same period. By contrast, the foreclosure rate of conventional mortgages barely increased, since many traditional lenders had maintained stricter underwriting standards, which had proved a good predictor of loan quality over the years...So in 1968, the federal government passed a law giving poor families FHA-insured loans that required down payments of as little as $250. Not urban uplift but urban nightmare followed. Seedy speculators began snapping up homes in transitional urban areas where crime and unemployment were rising. They would make lowball, all-cash offers to fearful residents, eager to sell and get out of the neighborhood. Once they had the properties, the speculators then turned around and used the new FHA-insured mortgages to sell the homes to low-income minority families for double or triple the price...Many of these mortgages—approved by bribed FHA inspectors—were way beyond the buyers’ means....In some markets, like Philadelphia and Detroit, more than 20 percent of the mortgages went to single mothers on welfare... numerous buyers who couldn’t read English and had no idea what their sales contracts said...About 4,000 FHA-insured home mortgages in Philadelphia defaulted in just the three years from 1969 to 1971—more than the total number that the city had seen over the previous 33 years of FHA loans...When in early 2000 the FDIC proposed increasing capital requirements for lenders making “subprime” loans—loans to people with questionable credit, that is—Democratic representative Carolyn Maloney of New York told a congressional hearing that she feared that the step would dry up CRA loans...Not content that nearly seven in ten American households owned their own homes, legislators in 2004 pressed new affordable-housing goals on the two mortgage giants, which through 2007 purchased some $1 trillion in loans to lower- and moderate-income buyers. The buying spree helped spark a massive increase in securitization of mortgages to people with dubious credit... In October 1994, Fannie Mae head James Johnson had reminded a banking convention that mortgages with small down payments had a much higher risk of defaulting. (A Duff & Phelps study found that they were nearly three times more likely to default than conventional mortgages.) Yet the very next month, Fannie Mae said that it expected to back loans to low-income home buyers with a 97 percent loan-to-value ratio—that is, loans in which the buyer puts down just 3 percent—as part of a commitment, made earlier that year to Congress, to purchase $1 trillion in affordable-housing mortgages by the end of the nineties. According to Edward Pinto, who served as the company’s chief credit officer, the program was the result of political pressure on Fannie Mae trumping lending standards. Obsessive Housing Disorder by Steven Malanga, City Journal Spring 2009

[wJswn5l3]

Those quotes are interesting so I'm off to read the whole thing (and hope it explains how loans worked in the 1920s if you had to continuously refinance).

As a preliminary view on this I think the answer minimally is: any government backed loan needs 20% down; end the mortgage interest deduction to stop disadvantaging renters.

[JMLot]

you may know the HOLC from other debacles such as redlining

It describes the practice of marking a red line on a map to delineate the area where banks would not invest... the practice called "redlining" began with the National Housing Act of 1934, which established the Federal Housing Administration (FHA).[10] The federal government contributed to the early decay of inner city neighborhoods by withholding mortgage capital and making it difficult for these neighborhoods to attract and retain families able to purchase homes.[11] In 1935, the Federal Home Loan Bank Board (FHLBB) asked Home Owners' Loan Corporation (HOLC) to look at 239 cities and create "residential security maps" to indicate the level of security for real-estate investments in each surveyed city. Such maps defined many minority neighborhoods in cities as ineligible to receive financing.... The assumptions in redlining resulted in a large increase in residential racial segregation and urban decay in the United States..Private organizations created maps designed to meet the requirements of the Federal Housing Administration's underwriting manual. The lenders had to consider FHA standards if they wanted to receive FHA insurance for their loans. FHA appraisal manuals instructed banks to steer clear of areas with "inharmonious racial groups" and recommended that municipalities enact racially restrictive zoning ordinances, as well as covenants prohibiting black owners Redlining - Wikipedia, the free encyclopedia

[Svatudjw]

Those quotes are interesting so I'm off to read the whole thing (and hope it explains how loans worked in the 1920s if you had to continuously refinance).

As a preliminary view on this I think the answer minimally is: any government backed loan needs 20% down; end the mortgage interest deduction to stop disadvantaging renters.

this one is pretty interesting as well
The Death and Life of Bushwick by Steven Malanga, City Journal Spring 2008
Often described by residents as a forgotten neighborhood, Bushwick was once a solid blue-collar community. But starting in the 1960s, a steady barrage of demographic changes and ruinous Great Society policies battered it down. So total was the devastation that even as New York began rebounding in the mid-1990s, Bushwick remained largely untouched by gentrification. Only recently—after years of tireless work by government (especially the police), local groups, and the private sector—has the revitalization of this once-proud neighborhood begun...unscrupulous real-estate agents and speculators tried to frighten white Bushwick residents—a practice known as “blockbusting.” Homeowners would find ominous messages in their mailboxes—“Don’t wait until it’s too late!”—as well as encouraging ones: “Houses wanted, cash waiting.” In a massive scandal reminiscent of today’s subprime-mortgage meltdown, speculators bought homes from Bushwick residents for an average of $8,000 apiece, and then, using fraudulent appraisals and a Great Society federal mortgage program that insured home loans to low-income buyers, sold them to poor blacks and Puerto Ricans at prices that they couldn’t afford— on average, about $20,000 per home. Many defaulted, abandoning their homes and massively depressing local property values...To collect on fire insurance, owners began torching their own empty buildings; gangs set fire to abandoned buildings, too, and then waited for the fire department to do the hard work of knocking down walls and floors, making valuable fixtures and copper wiring easier to steal... One big Lindsay misstep was to hike rental subsidies for welfare recipients, which encouraged Bushwick landlords to fill vacant units with such tenants, since they now brought higher rents than ordinary tenants would pay on the open market. By the mid-seventies, half of Bushwick’s residents were on public assistance. After discovering that the city also paid generous relocation costs if fires displaced them, the welfare tenants began setting their own government-subsidized apartments ablaze. Investigators arrested one local welfare family that had collected $40,000 from the city for 13 fires that it set... Yet the mid-nineties saw a breathtaking restoration of order in the neighborhood, beginning when Mayor Rudolph Giuliani’s first police commissioner, William Bratton, revamped the NYPD and its crime-fighting methods. Murders dropped from 1990’s 77 to 12 in 1998. Total violent crime in the area fell 66 percent over the same period. By 1998, Bushwick saw 1,500 fewer annual robberies, 1,000 fewer burglaries, and 675 fewer assaults than it had eight years earlier.

Central to this success was Bratton’s innovative use of computers to track citywide crime patterns quickly, deploy extra officers to the hardest-hit areas, and hold commanders accountable for the results in their precincts—