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A History Lesson from the Great Depression in Foreclosure Management

thenichereport.comOct 18, 2012

By Rick Roque

(TheNicheReport) — Of all the lessons learned during the Great Depression of the 1930s, the Federal Home Loan Bank Act of 1932 stands as one of the most powerful examples of efficient government intervention during a time of economic crisis. The system of 12 Federal Home Loan Banks, from which Fannie Mae and Freddie Mac emerged, have provided funding for residential mortgage loans for the last eight decades –in addition to keeping the cost of home ownership within reasonable levels.

The foreclosure crisis during the Great Depression was of a greater magnitude in comparison to the avalanche of foreclosures that have piled up since around 2007. By the time the Federal Home Loan Bank Act was passed, the rate of foreclosures in the United States was about a thousand a day. At the time the radical interventionist legislation was passed, bankers criticized the federal government’s measure as being egregious and arbitrary.

 

The Birth of Mortgage-Backed Securities

It is interesting to note that Federal Home Loan Bank were pioneers of mortgage securitization, particularly since the reckless creation and trading of these debt instruments were at heart of the financial meltdown in 2008. In 1932, the federal banks provided funding for residential construction firms that also acted as lenders. Mortgages written in good faith were accepted as collateral and then sold to investors as securities.

Securitization of mortgage-backed debt was solely within the purview of the newly created institutions in the wake of the Great Depression. They managed to create cash flow at a time when the U.S. housing industry had thoroughly collapsed. In a historic move that would be repeated in late 2008, a mortgage moratorium was called by the chairman of the new federal banks.

The passing of the Federal Home Loan Bank Act shows that government intervention in real estate and mortgage matters can be leveraged to alleviate an ailing system. For this reason, current discussion about the Federal Housing Administration (FHA) and its need to tap a credit line from the Treasury in order to stay afloat should include a look back at the policies enacted and measures taken during the Great Depression.


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CFLA was founded by the Nation's Leading Foreclosure Defense Attorneys back in 2007 to serve the Foreclosure Defense Industry and fight pervasive Bank Fraud. Since opening our virtual doors, CFLA has rapidly expanded to become the premier online legal destination for small businesses and consumers. But as the company continues to grow, we're careful to hold true to our original vision. For us, putting the law within reach of millions of people is more than just a novel idea—it's the founding principle, just ask Andrew P. Lehman, J.D.. With convenient locations in Houston and Los Angeles, you can contact Our National Account Specialist and General Manager / Member Damion W. Emholtz at 888-758-2352 for a free Mortgage Fraud Analysis or to obtain samples of work product, including cutting edge Bloomberg Securitization Audits, Litigation Support, Quiet Title Packages, and for more information about our Nationally Accredited and U.S. Department of Education Approved "Mortgage Securitization Analyst Training Certification" Classes (3 days) 24 hours for approved CLE & MCLE Credit (Now Available Online).

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