Home Owners Refinancing Act
The Homeowners Refinancing Act was part of Franklin D. Roosevelt’s New Deal during the Great Depression. It was an Act of Congress passed to help those in danger of losing their homes. This act, was effective beginning June 13, 1933 provided loans and refinancing mortgage assistance to homeowners in debt or would-be homeowners.
The Act was sponsored by Senate majority leader Joe Robinson of Arkansas, created the Home Owner’s Loan Corporation (HOLC). The purpose of this corporation is to lend money, with low-interests, to families in danger of losing their homes to foreclosure. The corporation aided in making the American dream, the dream of owning a reality. It was a pipe dream at best during that time. Prior to the passage of the Homeowner Refinancing Act, roughly only 40% owned their own homes. The Mortgage terms then were very tough to meet, 35% down payment, with five to ten years allowed to repay the loan. The depression of 1929 made things worse for prospective homeowners.
In 1933, banks were hit hard by the depression, the economic collapse allowed them to issue only about 864 mortgages, exceedingly down compared to the 5800 mortgages in 1928. The President and Congress worked hand in hand because of the clamor of the people for immediate action. The solution they jointly agreed upon was the Homeowners Refinancing Act.
The Home Owners Refinancing Act gave the Home Owner’s Loan Corporation a start-up fund of $200 million and was authorized to issue tax-exempt bonds to the tune of $2 billion. With this huge infusion of cash, the HOLC was able to give better rates to homeowners and prospective homeowners. It was able to offer financing up to 80 percent of a house’s assessed valuation, at the same time provide refinancing for people who were about to lose their homes because they cannot meet the previous loan agreements. The interest rates provided by the HOLC went down as low as 5 percent, with repayments stretched to 25 years and insurance became available, through arrangements with the Federal Savings and Loan Insurance, Corp and Federal Housing Authority. The resultant shakeup in home financing market forever changed the US mortgage banking industry.