Joint Center for Housing Studies

In doing some random Googling, I came across the Joint Center for Housing Studies at Harvard. It is a collaboration between the Graduate School of Design (yaay---my sister Lilli graduated from the GSD), The Kennedy School of Government, and it looks like Economic and Sociology Departments within the broader Harvard University. It was really interesting to go around the site, although very time consuming and very academic, but they have some very interesting publications written before the housing crisis writing about the implications of relaxing credit for mortgages, the role of the FHA in increasing home ownership and many many others. In the background section of one paper, written by Albert Monroe in 2001, he described the start of the Great Depression and the FHA: [startling in light of the current crisis]

The banking crisis in the early 1930s forced lenders to call in the mortgages as they came due, and since all lenders were affected by the banking crisis, refinancing was not available and many borrowers were forced to default. Other borrowers became unemployed and could not make their mortgage payments, so lenders foreclosed on their homes. The situation was exacerbated as the weak economy caused property values to fall, moving borrowers into negative equity situations and giving them an incentive to default. In short, by 1934, many banks had numerous bad home loans on their books (loans for which the collateral—the home—was worth less than the value of the loan). Their lack of assets and their recent experience made them unwilling to extend new home loans.
Policy makers hoped that the FHA, by insuring mortgages, would jumpstart the market for home loans, thereby increasing housing starts and employment in the construction industry. The FHA revolutionized the mortgage market, not only by getting banks to start lending again, but also by changing (and standardizing) mortgage instruments and underwriting procedures. In particular, the FHA (Section 203b) insured 100 percent of qualified loans in case of default. At first, the FHA would qualify 20-year fully amortizable loans with an 80 percent LTV. Later, the FHA began to qualify 30-year loans with LTVs higher than 95 percent. The FHA’s 100 percent insurance was very important because at that time there did not exist reinsurance markets in which banks could reduce their home loan risk.