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This chapter introduces the HOLC by exploring how it provided relief to one borrower, Joshua C. from Coeur D’Alene, Idaho, who faced foreclosure in 1934 due to a lower market value for his house, less income, and medical debts. The chapter also provides an overview of the book and a summary of its principal findings.

This chapter describes the basic operations of the HOLC and gives a chronology of its activities. The HOLC bought distressed loans from lenders and refinanced those loans for borrowers from 1933 to 1936. It then serviced these loans until its portfolio was finally liquidated in 1952. In performing these roles the HOLC functioned as both a loan refinance program and a bad bank. During its first three years the HOLC determined the scale and scope of its activities by setting eligibility rules for borrowers, by determining the benefits borrowers received from a loan modification, by negotiating with lenders over the purchase price for distressed loans, and by setting the terms of the bonds it issued to finance its activities. After 1936, the HOLC turned its attention to servicing loans, foreclosing upon loans when necessary, and managing and disposing foreclosed properties.

The HOLC provided significant relief to individual borrowers and lenders, and also pursued a more general public mission. HOLC officials were determined to stabilize mortgage and housing markets by interrupting the cycle of foreclosures and price declines that caused a downward spiral in the early 1930s. This chapter describes the findings of an econometric analysis of HOLC activity in local housing markets. The evidence shows that on average the HOLC prevented declines in house prices and home ownership outside the nation’s largest cities between 1930 and 1940, but did not affect construction in those markets. The authors identify these effects by using the location of HOLC offices as a source of randomness affecting the allocation of refinance activity. The effect of the HOLC on markets in larger cities is still an open question.

This chapter reviews the popular conception that the HOLC returned a small profit to taxpayers. In fact, once all of its implicit and explicit costs are taken into account, the HOLC was the source of a modest loss on the order of about 2 percent of its assets. The popular conception is based only the fact that upon liquidation the HOLC returned $214 million to the U.S. Treasury in repayment for the $200 million it had invested in the HOLC nearly twenty years earlier. Although misleading, this one outcome underscores that the Treasury and the general taxpayer were never forced “bail out” the HOLC by making up for shortfalls on the repayment of HOLC bonds that they had guaranteed. The Treasury and taxpayers were not fully compensated, however. The return on the $200 million in capital supplied by the Treasury in 1933, to begin with, was well below competitive market rates. More important was the uncompensated guarantee provided by taxpayers on $2.8 billion of HOLC bonds. On economic terms, taxpayer support of HOLC bonds allowed the program to charge lower interest rates, constituting a significant subsidy to mortgage and housing markets.

This chapter concludes the book by summarizing four main findings regarding how the HOLC affected borrowers, lenders, housing markets, and taxpayers. The HOLC gave lenders a good deal by buying loans at or close to the full debts owed. The HOLC aided borrowers by offering low interest rates, longer repayment periods, and by not foreclosing quickly when borrowers fell behind on HOLC payments. The program helped prevent some additional declines in home values and home ownership rates. The loss to the taxpayer from the HOLC was about 2 percent of the value of the loans, while the government guarantee of HOLC bonds provided additional subsidies of 10 to 20 percent of the value of the loans. The HOLC policies are compared with recent housing policies in the Great Recession