Reply #93: The home mortgages that banks called in during the Great Depression

[fasttense]

were more like balloon payment loans. Loans on homes and land were different then, as compared to today. Back then you would get a loan and so much was due by the end of the first year or two, and the remainder was due at the end of the period of the loan. You could pay off as much, or as little, in-between but you better have paid the agreed amount by the terms or the bank would call in your loan. Smart people would put some money away each month to cover the up coming balloon payment.

During good times, if you had not paid say 50% of the loan (including interest) by the end of 2 1/2 years on a 5 year loan, the bank would let it ride, expecting you to pay in full by the end of the 5 year loan period. But when the stock market crashed and banks were calling in loans, the loans they were calling in were the people who didn't pay their 2 1/2 year balloon payments. Some of those loans also had riders where the bank could call it in anytime they felt like it. Some people thinking they could flip the property got loans that were due in as little as thirty days.

Something else to note during the Great Depression is that when banks finally opened again, people were lucky to get 2 to 10 cents on their dollar back from the banks. That is if you had $300 in the bank before the run, then after the run, after the bank closed and opened again, you would be lucky to have $30. That's why we have FDIC now.