The Birth of Redlining: The Real History of the Homeowners Loan Corporation – Smoke and Mirrors

The Home Owners Loan Act was passed in 1933 and the Act created an emergency agency called the Home Owners Loan Corporation (HOLC). The HOLC was under the supervision of the Federal Home Loan Bank Board (FHLBB). The primary function of HOLC was to refinance mortgages that were going into foreclosure. Mortgage foreclosures were occurring at the rate of approximately 1,000 per day. By today’s standard, that number is miniscule but when viewed as a percentage of the total housing stock going into default, the numbers were approximately 45-50%. To give some context to that figure, the foreclosure rate at the end of 2007 was approaching 3%. HOLC refinanced approximately 1 million homes or close to 20% of US mortgages between 1933 and 1936.

Prior to the Great Depression, homeowners typically put a minimum of 60% down on a home, with payment terms of 3-5 years of interest only. After the term, the homeowner would refinance the loan. If the bank chose not to refinance, the homeowner would loose their down payment and property. HOLC had favorable rates as well as 216-300 months to repay the loan in full. It is alleged that some homeowners stopped paying their mortgage intentionally for the more favorable terms offered by HOLC.

The salty story on HOLC begins like this: less than 1% of that $3.5 billion went to Black folk. HOLC’s policy was to favor single family residences outside the central cities which favored suburbia and inclined toward racial segregation based upon the premise that racially homogeneous neighborhoods were more stable and presented the lowest risk. HOLC records indicate during the years 1933 through 1936 when it was authorized by Congress to issue loans, 44% of its assistance went to “native white”, 42% went to “native white and foreign” and 1% to Negro.