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Collateral Damage: The Impact of Foreclosures on New Home Mortgage Lending in the 1930s

Published online by Cambridge University Press:  16 July 2020

Price Fishback
Affiliation:
Professor, University of Arizona and NBER, McClelland Hall 401GG, 1130 East Helen Street, P.O. Box 210108, Tucson, AZ85721-0108. E-mail: pfishback@eller.arizona.edu.
Sebastian Fleitas
Affiliation:
Assistant Professor, University of Leuven and CEPR, Department of Economics, University of Leuven, Naamsestraat 69, 3000 Leuven, Belgium. E-mail: sebastian.fleitas@kuleuven.be.
Jonathan Rose
Affiliation:
Policy Advisor, Federal Reserve Bank of Chicago, 230 S Lasalle St., Chicago, IL60604. E-mail: Jonathan.Rose@chi.frb.org.
Ken Snowden
Affiliation:
Professor, University of North Carolina–Greensboro and NBER, Department of Economics, UNC at Greensboro, Greensboro, NC27412-5001. E-mail: snowden@uncg.edu.

Abstract

The Great Depression of the 1930s involved a severe disruption in the supply of home mortgage credit. This paper empirically identifies a mechanism lying behind this credit crunch: the impairment of lenders’ balance sheets by illiquid foreclosed real estate. With data on hundreds of building and loans (B&Ls), the leading mortgage lenders in this period, we find that the overhang of foreclosed real estate explains about 30 percent of the drop in new lending between 1930 and 1935.

Type
Article
Copyright
© The Economic History Association 2020

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Footnotes

We thank the editor, Bill Collins, and two anonymous referees for their comments. We also thank seminar participants at the Instituto de Economía–Universidad de la República, NBER Development of the American Economy, World Economic History Congress, Economic History Association, and Southern Economic Association. Fishback and Snowden acknowledge the financial support provided by National Science Foundation Grant SES-1061927. The views presented in this paper are solely those of the authors and do not necessarily represent those of the Federal Reserve System or its staff, the NBER, or the CEPR.

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