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1.2.2.1 The Federal Home Loan Bank System

Among the many tragic consequences of the Great Depression was the widespread foreclosure of many home mortgages. Early attempts to resolve foreclosures focused on encouraging banks and homeowners to renegotiate loan terms through mediation boards and other voluntary arrangements.19 Like similar efforts after the collapse of 2007, these attempts proved grossly inadequate.20

One of first steps Congress took to address the housing crisis was to enact the Federal Home Loan Bank Act of 1932.21 This established the Federal Home Loan Bank System, a network of cooperatively owned wholesale banks22 coordinated by the Federal Home Loan Bank Board.23 The federal home loan banks (FHLBanks24) were intended to restore liquidity to the home financing system by making advances to member banks and by directly originating home loans.25 But, due to structural and other reasons, the system proved unable to meet expectations and conditions worsened.26

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