Franklin D. Roosevelt: Excerpt From "Recommendation for Legislation to Provide Assistance" eText - Primary Source

Primary Source

Excerpt from "Recommendation for Legislation to Provide Assistance for Repairing and Construction of Homes, May 14, 1934"

Reprinted from The Public Papers and Addresses of Franklin D. Roosevelt: Volume Three, 1934
Published in 1938

"The protection of the health and safety of the people demands that this renovizing [repairing] and building be done speedily."

Franklin D. Roosevelt

As part of President Franklin Roosevelt's New Deal economic policies, two pieces of legislation were passed by Congress to deal with the ailing home financing systems and the construction industry. On June 13, 1933, just three months after Roosevelt took office, Congress passed the Home Owners' Refinancing Act, which created the Home Owners' Loan Corporation (HOLC). The HOLC was an emergency agency whose goal was to stop the avalanche of fore-closures by refinancing home owners' loans. Refinancing means to set up new loan terms that are easier to pay back, such as a longer repayment period and lower interest rates.

To deal with the construction nosedive, Congress passed the National Housing Act on June 28, 1934; the act established the Federal Housing Administration (FHA). The National Housing Act was designed to stimulate construction without government spending, because Roosevelt wanted to rely on private enterprise: Home loans were to be made by private lending institutions, predominantly banks. The FHA made no loans but insured the home loans made by private lending institutions. If a borrower failed to make payment, the FHA would pay the lending institution the amount owed on the failed loan. In response to this arrangement, bankers freed up a great deal of money for home loans, because they assumed almost no risk if borrowers could not repay them.

To help guarantee that the loans it insured would not go bad, the FHA helped lending institutions design loans that were more workable for the average American. Down payment requirements and interest rates were lowered and the repayment period was extended to twenty-five to thirty years, all translating into low, easily met monthly payments.

The first part of the following excerpt is from an address Roosevelt made to Congress, asking legislators to pass the National Housing Act. President Roosevelt wrote the second part of the excerpt beginning with "Note:" in December 1937. In his "note," Roosevelt explained the need for the 1934 act and related how successful the programs of the FHA had been.

Things to remember while reading the excerpt from "Recommendation for Legislation to Provide Assistance for Repairing and Construction of Homes, May 14, 1934":

  • As more Americans lost their jobs or took salary cuts, they fell behind on house payments. No one was buying a new home. As a result, home construction stopped.
  • By 1933, 40 to 50 percent of all home mortgages (loans) in the United States were in default (borrowers had not been able to make payments). The home financing system and the construction industry were near collapse.
  • Because home owners could not afford regular maintenance repairs, houses became run-down and property values slid downward.

Excerpt from "Recommendation for Legislation to Provide Assistance for Repairing and Construction of Homes, May 14, 1934"

To the Congress:

May I draw your attention to some important suggestions for legislation which should tend to improve conditions for those who live in houses, those who repair and construct houses, and those who invest in houses?

Many of our homes are in decadent condition and not fit for human habitation. They need repairing and modernizing to bring them up to the standard of the times. Many new homes now are needed to replace those not worth repairing.

The protection of the health and safety of the people demands that this renovizing and building be done speedily. The Federal Government should take the initiative immediately to cooperate with private capital and industry in this real-property conservation. We must lay the groundwork for this effort before Congress adjourns its present session.

The purpose of the program is twofold: first, to return many of the unemployed to useful and gainful occupation; second, to produce tangible, useful wealth in a form for which there is great social and economic need.…

Note: … Pursuant to the message, the Congress enacted a National Housing Act, approved June 28, 1934.… The declared purpose of the Act was to encourage improvement in housing standards and conditions and to create a sound system of home financing.

The Federal Housing Administration set up by the statute does not loan its own money or make any grant of Federal funds. What it does is to insure loans made by banks, building and loan associations, insurance companies and other private lending institutions for refinancing existing houses, for the construction of new homes and for the modernization and repair of all types of structures.

Owing to the continued depression, residential construction in America had sunk to a very low ebb. Not only was there a cessation of new home construction, but because of general lack of funds, homes had been allowed to fall into disrepair. A program of construction of new homes and of repair and renovation would not only provide useful work for the unemployed, but would produce tangible useful wealth in a form socially and economically desirable.

The Federal Housing Administration has made much progress along the lines and objectives laid down by the statute. From the time of its creation to December 1, 1937 [when this note was written], the gross business transacted by it totaled nearly $2,000,000,000. Over 250,000 home mortgages, valued at more than a billion dollars, were accepted by it for insurance. The homes securing these [FHA-insured] mortgages would provide for a city of nearly a million inhabitants; and it is estimated that, each week, over 2,000 additional families are acquiring their own homes under this program.

Modernization and repair notes amounting to over $560,000,000 were insured under the emergency provisions of the Act which have since expired. By this means the Housing Administration has raised the living standards of the millions of persons residing in the 1,250,000 urban dwellings and farm properties so improved; and it has enabled more than 100,000 small business concerns to modernize their plants and equipment. [Roosevelt, pp. 232, 234–235]

What happened next…

The combined activities of the HOLC and the FHA enabled families to keep their homes and revived the construction industry. By February 1936 the HOLC had refinanced 992,531 home loans totaling more than $3 billion. The HOLC loans prevented countless foreclosures and allowed home owners to start paying their property taxes again. This permitted communities to pay for local schools, police, and other services, all of which depended on the regular collection of those taxes. Millions of loan dollars also went to repair and remodel homes. Thousands of jobs were created in the building trades, including jobs in the manufacture, transportation, and sale of construction materials. However, since the HOLC was set up only as an emergency agency, it stopped offering loans in June 1935 and spent the next fifteen years collecting payments on its loans.

Unlike the HOLC, the FHA was established as a permanent agency. Between June 1934 and December 1937, the FHA insured more than 250,000 home mortgages valued at over a billion dollars. FHA loan terms made it possible for Americans to start purchasing new homes again, which stimulated the construction industry. Housing starts, or the number of new homes on which construction began, numbered only 93,000 in 1933 but had risen to 337,000 in 1937 and to 619,000 in 1941.

Did you know…

  • No New Deal agencies had a more lasting or powerful impact on Americans over the rest of the twentieth century than the HOLC and the FHA. These agencies laid the foundation for low-risk, low-interest, equal-monthly-payment mortgages.
  • The HOLC set standards for appraisal (evaluation) of a home's value, and the FHA set building construction standards.
  • The FHA favored single-family homes in suburban areas. For example, in St. Louis, Missouri, between 1935 and 1939, 92 percent of new homes insured by the FHA were in the suburbs.

Consider the following…

  • Use your math skills and figure out why it was easier to make loan repayments that were spread over thirty years than to pay back loans that demanded complete repayment in five years—the typical loan arrangement before the New Deal. Assume that the home cost $5,000, a typical selling price of a middle-class home in the late 1930s.
  • New Deal support for suburban housing reflected Roosevelt's belief that people lived a better life in the country than in cities. The FHA discouraged loans for multi-family dwellings but encouraged loans for single-family houses in the suburbs. What effect do you think the FHA loan practices had on inner-city residential areas?

For More Information

Gelfand, Mark I. A Nation of Cities: The Federal Government and Urban America, 1933–1965. New York, NY: Oxford University Press, 1975.

Jackson, Kenneth T. Crabgrass Frontier: The Suburbanization of the United States. New York, NY: Oxford University Press, 1985.

Roosevelt, Franklin D. The Public Papers and Addresses of Franklin D. Roosevelt: Volume Three, 1934. New York, NY: Random House, 1938.