>>In the great depression over 20% of home mortgages were in default.<<
At what specific time during the great depression was that true? What percentage of homes even had a mortgage then compared to now?
Where, in this great depression are we relative to the one in the 1930’s? If we are at the very beginning, would not the mortgage statistic naturally be lower right now?
“At what specific time during the great depression was that true? What percentage of homes even had a mortgage then compared to now?”
Most homes that had been purchased within the prior decade or so had mortgages BUT, and this is a big but:
In many cases, they were interest only, meaning, that some number of years would go by and the borrower would be compelled to refinance their mortgage or lose their home.
This was a little more common with farms, but was true with homes also. I use the word “refinance” and you probably think “hey no problemo”, they already have all my info, I just have to update my financials; I should use the wording “get a whole new mortgage”. Many times, the first lender just wasn’t all that interested in originating a new loan. And of course, conditons could have changed in any of several ways. Remember, the great majority of these loans were held on the books of the originator, they weren’t big moneymakers at all. In fact, they were generally a bookeeping hassle to the lender.
Secondly, those mortgages were in many cases callable, whereas mortgages today are essentially non-callable.
The solution to these problems that became common after the depression was the “standard” 20% down, 30-year self-amortizing loan, and it worked pretty darn well for a long time. When FNM was founded in 1938, the secondary mortgage market created thereby was a wonderful thing for the local banks who could sell off these loans and get their funds back. I have no real problem with the basic concept of FNM, it was actually very clever. The problem arose when FNM dropped the definition of a “conforming” loan. THen the whole system got polluted.
I really don’t know the answers to your questions. I was quoting a figure I read but can’t point you to.
I know the comparisons to the Great Depression are vastly overstated though if we do not re-capitalize the markets things could get much worse very fast.
The stock market dropped 40% in a few days, banks held securities to back deposits and people ran to the banks to get their money. With inadequate reserves and no FDIC insurance (tax payers) banks just folded and people lost their money. Politicians made horrible decisions that exacerbated the problems: The fed at the time CUT BACK on liquidity in the system by one third, Hoover RAISED taxes taking even more liquidity out of the system and prices DEFLATED(read no growth) by as much as 30% and the economy began to die on the vine.
The results were large scale home foreclosures, banks closing and depositors loosing their money, businesses closing, unemployment shooting to 25%, rapid deflation of values, and basic stagnation.
We have 4% home foreclosure rates right now, 6% unemployment, 3% GDP growth, INFLATION of some amount, and though some banks have closed there are no runs that have caused panic.
This is not to say that politicians can not screw it up further by not bringing liquidity to the market. I want to see this “bail out bill” (inaccurate name we are not bailing out anyone) passed or at least something like it. WE do not want to make the same mistakes that politicians made in Hoover’s day by choking off liquidity.