	Introduction

Increasing delinquency and default rates on subprime mortgages in 2007 and 2008, along with liquidity problems in other financial sectors, have led some to call on the federal government to intervene in the mortgage market. The Home Owners' Loan Corporation (HOLC) was created in 1933 to refinance homeowners' mortgages. This report analyzes HOLC, the Continental Illinois failure and government reaction in 1984, the savings and loan crisis of the 1980s, and the 1989 Brady Plan for bonds from developing countries. Some of the homeowners accepted by the program will have their mortgage interest rates frozen. This report examines four government market interventions: (1) the Home Owner Loan Corporation (HOLC) of 1933; (2) Continental Illinois in 1994; (3) the savings and loan crisis of the 1980s; and (4) Brady bonds in 1989. Continental Illinois, in 1984, is included because the bank failed to properly underwrite loans, and because the Federal Reserve and the Federal Deposit Insurance Corporation led assistance efforts. Contemporary Issues

At the time that HOLC was created, some were concerned that lenders would not accept the HOLC bonds. It developed new methods of working with borrowers who became delinquent, including personal contact with the borrowers. Should the new organization follow HOLC's experience and help delinquent homeowners find better jobs and rent out spare bedrooms? Congress passed the FDIC Improvement Act of 1991 to strengthen large bank regulation. Congress provided $91.3 billion ($158.7 billion in 2008 dollars) to the Resolution Trust Corporation to pay for the restructuring. However, the purpose of the savings and loan intervention was to minimize the cost to the government of honoring the federal insurance of deposits at illiquid and insolvent savings and loans. In 1989, then-U.S. Treasury Secretary Nicholas F. Brady proposed what became known as the Brady Plan—a combination of bank loan forgiveness and repackaging remaining debt into bonds that could be traded on securities markets. Debtor countries, also, collateralized 12-18 months of interest by making a deposit at the Federal Reserve Bank of New York or by purchasing U.S. Treasury bills. Borrowers had more manageable repayment schedules. 1106 , Helping Families Save Their Homes Act of 2009. They worry that in the case of a government intervention to help homeowners, the possibility of a repeat of the intervention could encourage some lenders to lend more than they would, absent the history of government action.
This report summarizes and analyzes four previous government market interventions (Home Owners Loan Corporation in 1933, Continental Illinois in 1984, the savings and loan insurance fund shortfall in 1989, and the Latin American debt crisis in 1989), in light of current mortgage market conditions. Current proposals to help delinquent homeowners share many features in common with all of these actions.
The Home Owners Loan Corporation (HOLC) purchased delinquent mortgages at a discount and worked with homeowners to restructure the mortgages into more manageable terms. HOLC accepted slightly more than one million applications from homeowners to refinance their homes between June 1933 and June 1935. It rejected 488,000 applications, most for "inadequate security" and "lack of distress." HOLC foreclosed on 194,000 of those it was attempting to assist. At the time, many had serious concern that HOLC could be a costly undertaking, but when it disbanded in the early 1950s, HOLC returned a small profit to the government. HOLC successfully conceived and implemented new ways to contact delinquent homeowners and, in some cases, help homeowners find new jobs.
In 1984, Continental Illinois National Bank suffered a run after loans that it had not properly underwritten failed. The Federal Reserve and the Federal Deposit Insurance Corporation led intervention efforts. There were concerns that allowing the bank to fail could have serious repercussions throughout the financial system. This led to the FDIC Improvement Act of 1991.
In the 1980s, the Federal Savings and Loan Insurance Corporation approached insolvency because of the failure of member savings and loan institutions, also known as thrifts. Working together, Congress and the George H. W. Bush administration established the Resolution Trust Corporation (RTC), which was funded by the Resolution Funding Corporation (REFCORP). The thrift industry is still paying off the intervention operation, which is estimated to have cost $152.9 billion.
In 1989, Brady bonds helped less developed countries, mostly in Latin America, restructure their debt by renegotiating terms and writing down some of the loans. The plan, proposed by then-U.S. Treasury Secretary Nicholas F. Brady, overcame coordination problems in previous restructuring efforts. In addition to writing down some loans, the plan included some interest rate reductions, and having debtor nations post U.S. Treasury bonds as collateral with the Federal Reserve. Approximately $91.8 billion was refinanced under the plan. Repayment continues today.
H.R. 1106 is among the bills before the 111th Congress that would intervene in economic (housing) markets.