Federal policy appears to have been a key factor in this transition. First, the Home Owners’ Loan Corporation – a sort of precursor to today’s Making Home Affordable program – purchased distressed mortgages and modified them into loans that amortized for 15 years or longer.9 Second, the newly created Federal Housing Administration sold insurance on 20-year fully amortizing loans.
Third, savings and loans with new federal charters were required to make fully amortizing loans except when state law forbade it. The challenge for us today, as I see it, is to emulate our predecessors from the 1930s who dealt with a comparable crisis. We need to consider our current array of mortgage contracts with a dispassionate eye and open mind.