The impact of Depression-era Homeowners’ Loan Corporation lending in Greater Cleveland, Ohio

Abstract

In this paper, I build on previous historical studies that have analyzed the lending activities of the Homeowners’ Loan Corporation (HOLC), a New Deal agency established in 1933 to mitigate the national mortgage foreclosure crisis caused by the economic fallout of the Great Depression. I investigate whether discriminatory lending practices took place in Greater Cleveland, Ohio. I also examine a second question related to the contemporaneous impact of HOLC lending: did lending actually decrease Depression-era foreclosure rates in areas of significant lending activity? Census tract-level ordinary least squares, two-stage least squares, and spatial regression models are estimated to answer these questions. While studies of the HOLC in other cities (including Philadelphia, Pittsburgh, St. Louis, and Chicago) have attempted to assess the possibility of discriminatory lending outcomes, their findings have remained inconclusive. In addition, previous studies have not assessed the HOLC’s practical success, especially in terms of foreclosure amelioration. I use extensive historical evidence, in conjunction with appropriate tools of empirical analysis, to explore the evidence that the HOLC’s lending practices were discriminatory in Cleveland and that the practical effect of the HOLC lending was nonexistent. Additionally, in areas of high HOLC lending concentrations for the years 1933–1935 (the years of its operation), there was no significant reduction in relative foreclosure rates in subsequent years (1936 and 1937).