It is well known that the government-sponsored enterprises that played a significant role in the 2006-to-2008 home mortgage crisis (especially Fannie Mae and Freddie Mac) trace their origins to Depression-era federal housing programs. This book broadens our understanding of the history of federal intervention in the mortgage market by providing a wide-ranging examination of the legislation that permanently reshaped the nation's farm and home mortgage markets between 1913 and 1939. Before these interventions, mortgage markets were regulated by states and serviced by a patchwork of privately owned, nonbank intermediaries. Within this regime, individuals were the largest source of mortgage finance, access to and the cost of mortgage finance varied widely across regions, and mortgage loans were written for short terms and required high down payments. Judge Glock shows that federal interventions between 1913 and 1939 addressed these shortcomings by encouraging the participation of commercial banks in mortgage markets and by creating new federal and federally sponsored institutions to underwrite and facilitate the funding of private mortgages. These initiatives helped to integrate regional mortgage markets and liberalize mortgage lending terms, but this book focuses primarily on the origins of policies that have had long-term unintended consequences: federal guarantees and incentives that have contributed to recent mortgage crises and bailouts.
Between 1913 and 1939, the American mortgage market was buffeted by a wartime agricultural boom, a rapid postwar urban building expansion, and subsequent busts in the farm mortgage market in the 1920s and the home loan market during the Great Depression. In response, the federal government enacted the Federal Reserve Act (1913), the Federal Farm Loan Act (1916), the Agricultural Credits Act (1923), the McFadden Act (1927), the Federal Home Loan Bank Act (1932), the Home Owners’ Loan Act (1933), the National Housing Act (1935), and the Banking Acts of 1932, 1933 (Glass-Steagall), and 1935. Glock draws together the background and purpose of all this legislation, the actions of administrators who managed the new agencies that were created, and the thought leaders who shaped these early federal interventions into mortgage markets. The story is complex and wide ranging, but Glock tells it effectively by using archival materials, legislative documents, and contemporary accounts. The Dead Pledge is a must-read and a valuable reference for anyone interested in the development of federal policy in the early twentieth-century mortgage market.
Glock argues that two big ideas drove these policies: (1) that mortgages could be made as easily tradable and liquid as cash with federal support and (2) that by doing so, sectors that depended on mortgages could be brought into balance with sectors that did not. Rather than endorsing these ideas, Glock concludes that “the ideal of a balanced economy was always a mirage” since economies constantly adapt to changes in technology and demands and that “it was not until the 1980s that [we] began to reap the whirlwind” of bailouts resulting from the implicit federal guarantees introduced in the early twentieth century (pp. 201, 196). He also shows that these “big ideas” were not widely held consensus views at the time. Instead, they are better thought of as the intended impacts of a series of legislative compromises designed to address shortcomings of the nation's banking and mortgage markets, that cut across sectoral, ideological, and political fault lines, that ended up favoring both farm and urban constituencies, and that were embraced by five different presidential administrations.
Glock exposes two other notable features of early federal mortgage policy. The first has been neglected, if not ignored, in the literature—federal interventions in the home mortgage market regularly followed, and were often patterned after, earlier developments in the farm mortgage market. The pattern appears repeatedly in the narrative: for example, national banks were permitted to make mortgage loans on urban property (in McFadden) a decade after being allowed to do so on farm property (in the Federal Reserve Act); implicit federal guarantees for the bonds of the Federal Farm Loan Banks were introduced two decades before they were used to support Depression-era housing programs; and “homes play[ed] second fiddle to farms” as Roosevelt dealt with the mortgage crisis in his first hundred days (pp. 157–58).
The discussion also reveals the prominent role played by self-interested private market participants and professionals in the formulation and implementation of early legislation. Rural bankers helped write the Federal Farm Loan Act and administer the new Farm Loan Bank system while owning private organizations that benefited from it. The home mortgage policies of the 1930s, in like fashion, were formulated, staffed, and influenced by representatives of the building and loan industry, banks, insurance companies, and real estate groups. The narrative shows that powerful housing and farm lobbies did not arise because and after federal intervention; instead, these special interests shaped and grew with federal mortgage policy from its beginnings. The analysis of these insider influences would have been strengthened had Glock more fully integrated the rich history of private mortgage market innovation outside of the banking system that preceded federal intervention and influenced its structure.
Glock excels at explaining the political and administrative origins of early federal mortgage policy, but readers will have to look elsewhere for analysis of whether and how early these early federal policies contributed to the failures, and ultimate bailouts, of private mortgage lending channels. In a brief concluding chapter, Glock traces, but does not analyze, the connection between Depression-era housing policies and the S&L crisis and 2007–2008 bailouts. More importantly, the book also does not examine bailouts that occurred between 1913 and 1939 when early federal policies first had influence. There is no discussion of, for example, how the new Federal Land Bank system influenced the performance and eventual failure of the mortgage lending networks of the life insurance companies—networks that dominated private farm mortgage lending in the 1920s. There is also little discussion of the causes of the failures of private home mortgage lenders in the early 1930s that justified the Home Owners’ Loan Corporation—one of the largest bailouts in US history.
