Did HOLC inflate home appraisals to encourage lenders to modify loans?
Until Rose did the research for his paper, a lack of data—other than a handful of aggregate statistics—prevented us from knowing much about HOLC activities. However, Rose was able to obtain loan-level data for a sample of HOLC loans from New York, New Jersey, and Connecticut.1 His goal was to analyze how HOLC encouraged lenders to part with their loans—after all, although HOLC bonds were much less risky than the mortgage debt that lenders held on their portfolios at the time, the bonds also carried lower interest rates. Thus, some 1930s lenders could have decided to take their chances with their old mortgages and refuse participation in the government’s program. One key factor affecting the lender’s decision was the amount of mortgage debt that HOLC was willing to refinance, which because of a combination of law and HOLC policy, was only 80 percent of the value of the property as estimated by a HOLC appraisal. If the amount of the new HOLC mortgage was lower than the old mortgage, then
