Tested solutions for current problems

Jonathan Avery

The current circumstances in the real estate market have an old familiar ring. It seems that each day's newspapers bring headlines of a deepening crisis that will surely lead to recession. Although currently there are problems in certain sectors and clearly a deepening problem with single-family home foreclosures, this is neither new nor uniquely severe.

Two current problems for which traditional solutions are being brought forth are: the increasing number of single-family foreclosures and the decreased availability of debt financing for investment and development properties. Traditional solutions are being proposed and, in fact, occurring for these problem sectors.

In the case of single-family foreclosures, Senator Christopher Dodd of Connecticut is leading an initiative to re-establish an agency similar to the Home Owners Loan Corporation (HOLC). Senator Dodd is among a growing group of both academics and public figures who believe that this is a tested solution from the 1930s which has application today.

A strong supporter of this initiative is Alan Blinder, a Princeton professor and former vice chairman of the Federal Reserve. As he explains in a recent New York Times article (2/24/08), the HOLC was established in June of 1933 to help distressed families avert foreclosures by replacing mortgages that were in or near default with new ones that homeowners could afford. This was accomplished by buying the mortgages from banks and restructuring mortgages where necessary to make them affordable to the homeowners.

By 1935, the HOLC had received approximately 1.9 million applications from distressed homeowners