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Housing Markets in a Time of Crisis: A Historical Perspective
As the coronavirus (Covid-19) public health crisis unfolds, a second crisis in the economy is developing as well. One economic concern, among many, is the debt burden of households. Early reports point to a surge in unemployment claims during March 2020, raising the prospect that widespread unemployment is likely to impair the ability of households to make payments on their home mortgages and other loans in the months ahead. This represents a potential crisis in mortgage markets, as borrowers who are temporarily unemployed—but for an unknown period—may face default on their mortgages.
Working Paper
The prolonged resolution of troubled real estate lenders during the 1930s
This paper studies how building and loan associations (B&Ls) slowly unwound their obligations following a set of financial shocks during the Great Depression, with a special focus on a group of particularly troubled B&Ls in Newark, NJ. Investors in B&Ls disagreed over whether to realize losses on foreclosed real estate holdings, and those investors favoring liquidation were unable to force action after legal developments nullified statutory withdrawal privileges. In the medium run, a market-based resolution mechanism developed in the form of a secondary market for B&L liabilities. Liability ...
Working Paper
Rushing to Judgment and the Banking Crisis of 2023
This article critically reviews the 2023 banking crisis with the benefit of two years of hindsight. We highlight seven facts that depart from the standard account of the crisis that has developed. We describe the crisis as a reaction to bank business models that focused on providing banking services to certain economic sectors, crypto-asset firms and venture capital, that had come under economic pressure during the preceding year. We argue this view of the crisis provides a more precise explanation of which banks were affected compared to an explanation focused solely on banks’ balance ...
Newsletter
What Are the Consequences of Missed Payments on Consumer Debts?
In order to understand better how the unfolding economic crisis is likely to affect U.S. households, this Chicago Fed Letter looks at what happens when borrowers miss debt payments and how long it takes for them to face a severe adverse consequence, such as foreclosure, wage garnishment, or repossession.
Working Paper
Contract Choice in the Interwar US Residential Mortgage Market
This paper studies mortgage contract choices in US history using a first-of-its-kind sample of residential loans from 1930 and 1940, linked to the decennial censuses. Contract choices reflected borrowers' reactions to the risks posed by different contracts. The majority of borrowers chose contracts with the longest available terms, despite required frequent amortization, likely in order to avoid refinancing risk and to maximize leverage. In contrast, the most creditworthy borrowers with high socioeconomic status preferred short-term contracts, confident that they could refinance at will. The ...
Working Paper
Blockbusting and the Challenges Faced by Black Families in Building Wealth Through Housing in the Postwar United States
We study the impacts of blockbusting, i.e. large-scale racial turnover of urban neighborhoods orchestrated by real estate professionals using aggressive and discriminatory practices. In a panel of census tracts across large cities in the postwar United States, we compare tracts subjected to blockbusting activity to similar neighboring tracts not subjected to blockbusting. We find that blockbusting caused substantially lower house values over the next few decades. To understand the mechanisms behind this effect, we analyze property-level data in one neighborhood of Baltimore, Maryland. We find ...
Discussion Paper
Stigma and the Discount Window
One of the primary roles of central banks like the Federal Reserve is to provide liquidity to the financial system, particularly during periods of stress. The discount window is a critical tool for providing that liquidity. In this note, we discuss several topics related to stigma in depth and describe how concerns about stigma have influenced changes in Federal Reserve discount window policies.
The Speed of Discount Window Lending: A Look Back at 1985
The 1985 thrift crises in Ohio and Maryland show how the Fed, as a lender of last resort, took proactive steps to enhance the effectiveness of its discount window.
Working Paper
New Evidence on Redlining by Federal Housing Programs in the 1930s
We show that the Federal Housing Administration (FHA), from its inception in the 1930s, did not insure mortgages in low income urban neighborhoods where the vast majority of urban Black Americans lived. The agency evaluated neighborhoods using block-level information collected by New Deal relief programs and the Census in many cities. The FHA's exclusionary pattern predates the advent of the infamous maps later made by the Home Owners' Loan Corporation (HOLC) and shows little change after the drafting of those maps. In contrast, the HOLC itself broadly loaned to such neighborhoods and to ...