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# The ill-fated Home Construction Lending Act of 1901 (the HCLA) was

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The ill-fated Home Construction Lending Act of 1901 (the HCLA) was  [#permalink]

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Updated on: 03 Oct 2019, 20:47
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The ill-fated Home Construction Lending Act of 1901 (the HCLA) was intended to help families pay for the construction of their homes. Americans were flocking to rented apartments in big cities (as were immigrants from around the world), and the biggest supporters of the HCLA were builders and real estate firms located in rural areas. Their hope was that a family that could afford to buy property and build a house in a rural area, as opposed to renting an inexpensive, but crowded and possibly dangerous, apartment in a city, would choose the former. Ostensibly, the HCLA would make it easier for potential homeowners to borrow by providing a federally backed guarantee to the lender, which at the time was more likely to be an insurance company than a bank. In other cases, the government would actually buy the property and pay for the construction of the house. A family could move in and make payments to the government over a much longer period than they could if they were repaying a commercial lender. Unlike the typical amortized 30-year mortgage of today, home loans at the time were usually repaid over three or perhaps five years, and the borrower made a balloon payment of the entire principal at the end of the term. An HCLA loan from the government could be repaid—interest and principal — over as many as 15 years, and did not require a large final payment.

Many lenders, however, did not actually want to have their loans guaranteed, and they resisted providing HCLA loans. For these companies, more profit could be realized by repossessing property when borrowers defaulted on their loans. As to the properties bought and resold by the government, the relatively small payments made at a fixed interest rate cost the government money, and this arrangement was abandoned.

In the same year that saw the passage of the HCLA, the Tenement House Act forced builders in New York to improve the condition of their apartments. Lighting, ventilation, and toilet facilities were improved, and the Tenement House Commission was established to enforce the new law. Other cities followed suit. Urban life was now more attractive to men and women who would have otherwise preferred to live in a rural area, but who needed the employment opportunities that the cities could provide.

1. What is the primary purpose of this passage?

(A) To describe why the HCLA was passed, and why it proved ineffective
(B) To provide an overview of the home building situation in the early 20th-century America
(C) To give an example of a misguided attempt to regulate the urban housing industry
(D) To contrast the HCLA with current housing and home construction laws
(E) To elaborate on the reasons that Americans and foreigners flocked to the big cities in the United States during the early 1900s

2. Which of the following would most appropriately conclude this passage?

(A) The HCLA could not withstand this migratory push from rural life to city life, and was repealed less than six years after becoming law.
(B) At the same time, the farming industry was increasingly in the hands of large corporations.
(C) Even those elected officials who voted against the HCLA were surprised by its unpopularity.
(D) Though jobs were to be found in the large American cities, adjusting to urban life was still a shock for many young people who arrived at this time.
(E) The societal effect of the Tenement Housing Act continues to this day.

3. According to the passage, one reason that the HCLA was expected to increase home construction in rural areas was that, under the HCLA, _______.

(A) interest rates were lower
(B) the borrower could make smaller payments
(C) insurance companies, not banks, loaned the money
(D) the borrower would not be able to default
(E) the net cost to the borrower was reduced

4. According to the passage, the repercussions of the Tenement Housing Act _______.

(A) provided more employment for people moving to cities from rural areas
(B) had little effect on builders outside of New York City
(C) was abandoned because of its cost to the federal government
(D) convinced some people to try to find work in the big cities of the United States
(E) led to the passage of the HCLA

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Originally posted by carcass on 21 Jul 2016, 05:48.
Last edited by SajjadAhmad on 03 Oct 2019, 20:47, edited 2 times in total.
Updated - Complete topic (797).
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Re: The ill-fated Home Construction Lending Act of 1901 (the HCLA) was  [#permalink]

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23 Jul 2016, 01:44
1) What is the primary purpose of this passage?

The passage introduces HCLA, explains few repayment methods and later states that HCLA did not prove to be effective.

2) Which of the following would most appropriately conclude this passage?

(A) The HCLA could not withstand this migratory push from rural life to city life, and was repealed less than six years after becoming law. - Correct - Can conclude the passage
(B) At the same time, the farming industry was increasingly in the hands of large corporations. - Incorrect. Farming industry?
(C) Even those elected officials who voted against the HCLA were surprised by its unpopularity. - Incorrect. Self contradictory option and cannot be concluded. If they vote against HCLA they need not be surprised with its unpopularity
(D) Though jobs were to be found in the large American cities, adjusting to urban life was still a shock for many young people who arrived at this time. - Incorrect. Opposite
(E) The societal effect of the Tenement Housing Act continues to this day. - Incorrect - Out of scope.

3) According to the passage, one reason that the HCLA was expected to increase home construction in rural areas was that, under the HCLA, _______.

Refer: "Unlike the typical amortized 30-year mortgage of today, home loans at the time were usually repaid over three or perhaps five years, and the borrower made a balloon payment of the entire principal at the end of the term. An HCLA loan from the government could be repaid—interest and principal — over as many as 15 years, and did not require a large final payment."

4) According to the passage, the repercussions of the Tenement Housing Act _______.

Refer: "Urban life was now more attractive to men and women who would have otherwise preferred to live in a rural area, but who needed the employment opportunities that the cities could provide."

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Re: The ill-fated Home Construction Lending Act of 1901 (the HCLA) was  [#permalink]

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26 Sep 2016, 11:40
1
Veritas,

Q2 : Which of the following would most appropriately conclude this passage?

I did not understand how A can conclude the whole passage?

Conclusion is derived by the facts and supporting reasonings.Option A not only present new information[migratory push & effective duration] but also gives another reason to believe why HCLA did not work.

Second paragraph gives us a reason to conclude that the arrangement of payment made this strategy a less profitable strategy and third para gives us an external factor ( a new law) which indirectly put down HCLA.

How can a answer with loads of new information conclude the above informations?
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Re: The ill-fated Home Construction Lending Act of 1901 (the HCLA) was  [#permalink]

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01 Oct 2016, 08:24
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Top Contributor
Here conclusion does not mean the main point of the passage. But it means something that logically follows from the passage.
For answering such questions you have to look at the last paragraph of the passage and see what logically follows.

It talks about the Tenement Act and improvement in urban living conditions. This made urban life more attractive.
The previous paragraph talks about how HCLA proved unpopular with lenders and the failure of government mortgage plans for HCLA.
something that follows this must talk about the failure of HCLA. (We already know that it was ill-fated from the very first sentence of the passage.)
Only answer option that does this is A.
B - talks about a completely new topic. Does not logically follow from the discussion in the passage.
C - Incorrect. This option basically states that the act proved so unpopular that even those who voted against it were surprised. This sentence then, logically, must be preceded by something that talks about the unpopularity of the Act.
D - Just as option B, this option changes the flow.
E - This cannot follow from the 2nd and 3rd paragraphs. they talk about the various reasons for the failure of HCLA. Logically, what follows these paragraphs must be when the Act failed.
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Re: The ill-fated Home Construction Lending Act of 1901 (the HCLA) was  [#permalink]

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04 Oct 2016, 07:37
1
According to the passage, one reason that the HCLA was expected to increase home construction in rural areas was that, under the HCLA, _______.

(A) interest rates were lower
(B) the borrower could make smaller payments
(C) insurance companies, not banks, loaned the money
(D) the borrower would not be able to default
(E) the net cost to the borrower was reduced

Not sure how B is the answer... No where in the passage it is mentioned that the borrower would pay smaller amount..
It is just mentioned that the repayment could be done in much longer duration of 15yrs and it is not necessary to make larger lump-sum amount at the end.. This doesn't mean borrower could make smaller payment.

Am I missing something?
Can anyone highlight why exactly borrower could make smaller payments?

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Re: The ill-fated Home Construction Lending Act of 1901 (the HCLA) was  [#permalink]

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04 Oct 2016, 07:49
MorningRunner wrote:
According to the passage, one reason that the HCLA was expected to increase home construction in rural areas was that, under the HCLA, _______.

(A) interest rates were lower
(B) the borrower could make smaller payments
(C) insurance companies, not banks, loaned the money
(D) the borrower would not be able to default
(E) the net cost to the borrower was reduced

Not sure how B is the answer... No where in the passage it is mentioned that the borrower would pay smaller amount..
It is just mentioned that the repayment could be done in much longer duration of 15yrs and it is not necessary to make larger lump-sum amount at the end.. This doesn't mean borrower could make smaller payment.

Am I missing something?
Can anyone highlight why exactly borrower could make smaller payments?

Hi morningrunner,
These are the lines which will give you the answer
"A family could move in and make payments to the government over a much longer period than they could if they were repaying a commercial lender. Unlike the typical amortized 30-year mortgage of today, home loans at the time were usually repaid over three or perhaps five years, and the borrower made a balloon payment of the entire principal at the end of the term. An HCLA loan from the government could be repaid—interest and principal — over as many as 15 years, and did not require a large final payment."
These lines states that families could pay smaller amounts while repaying loans.
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Re: The ill-fated Home Construction Lending Act of 1901 (the HCLA) was  [#permalink]

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05 Oct 2016, 05:14
Vinayak Shenoy wrote:
MorningRunner wrote:
According to the passage, one reason that the HCLA was expected to increase home construction in rural areas was that, under the HCLA, _______.

(A) interest rates were lower
(B) the borrower could make smaller payments
(C) insurance companies, not banks, loaned the money
(D) the borrower would not be able to default
(E) the net cost to the borrower was reduced

Not sure how B is the answer... No where in the passage it is mentioned that the borrower would pay smaller amount..
It is just mentioned that the repayment could be done in much longer duration of 15yrs and it is not necessary to make larger lump-sum amount at the end.. This doesn't mean borrower could make smaller payment.

Am I missing something?
Can anyone highlight why exactly borrower could make smaller payments?

Hi morningrunner,
These are the lines which will give you the answer
"A family could move in and make payments to the government over a much longer period than they could if they were repaying a commercial lender. Unlike the typical amortized 30-year mortgage of today, home loans at the time were usually repaid over three or perhaps five years, and the borrower made a balloon payment of the entire principal at the end of the term. An HCLA loan from the government could be repaid—interest and principal — over as many as 15 years, and did not require a large final payment."
These lines states that families could pay smaller amounts while repaying loans.

Thanks Vinayak..
But these sentences donot say that people could make smaller payments... It just says that it is not necessary to make larger payments(entire principle) at the end.
It may be possible that borrowers could make equal monthly payments to avoid burden in the end. But the total amount repaid was not small!
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Re: The ill-fated Home Construction Lending Act of 1901 (the HCLA) was  [#permalink]

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05 Oct 2016, 10:34
MorningRunner wrote:
Vinayak Shenoy wrote:
MorningRunner wrote:
According to the passage, one reason that the HCLA was expected to increase home construction in rural areas was that, under the HCLA, _______.

(A) interest rates were lower
(B) the borrower could make smaller payments
(C) insurance companies, not banks, loaned the money
(D) the borrower would not be able to default
(E) the net cost to the borrower was reduced

Not sure how B is the answer... No where in the passage it is mentioned that the borrower would pay smaller amount..
It is just mentioned that the repayment could be done in much longer duration of 15yrs and it is not necessary to make larger lump-sum amount at the end.. This doesn't mean borrower could make smaller payment.

Am I missing something?
Can anyone highlight why exactly borrower could make smaller payments?

Hi morningrunner,
These are the lines which will give you the answer
"A family could move in and make payments to the government over a much longer period than they could if they were repaying a commercial lender. Unlike the typical amortized 30-year mortgage of today, home loans at the time were usually repaid over three or perhaps five years, and the borrower made a balloon payment of the entire principal at the end of the term. An HCLA loan from the government could be repaid—interest and principal — over as many as 15 years, and did not require a large final payment."
These lines states that families could pay smaller amounts while repaying loans.

Thanks Vinayak..
But these sentences donot say that people could make smaller payments... It just says that it is not necessary to make larger payments(entire principle) at the end.
It may be possible that borrowers could make equal monthly payments to avoid burden in the end. But the total amount repaid was not small!

Hi morningrunner,
If you read closely "A family could move in and make payments to the government over a much longer period than they could if they were repaying a commercial lender." this line suggests that you can longer duration to pay the loan. In the above question the borrowing family is generalized as a borrower.
In the detail questions such as above, answers can be of the reworded form or cut copy form from the passage. Usually it is the former on GMAT. So you got to read closely.
Also consider the options.
(A) interest rates were lower--- irrelevant in the question context. Not mentioned in the passage.
(B) the borrower could make smaller payments--- Correct answer (re-worded from passage)
(C) insurance companies, not banks, loaned the money--- Talks in line but not the question context.
(D) the borrower would not be able to default--- Mentioned in the later paragraghs. For detail question type you got to find answer pertaining to context of the question.
(E) the net cost to the borrower was reduced--- Not mentioned in the passage. out
Re: The ill-fated Home Construction Lending Act of 1901 (the HCLA) was   [#permalink] 05 Oct 2016, 10:34