The History of the American Mortgage Loan

Loans.org Presents THE HISTORY OF THE AMERICAN MORTGAGE LOAN MORTGAGE FACTS 1. Mortgage lending started with insurance companies, not with banks. Some private mortgage companies were in business before the 1930s but they were not capitalized properly. The FHA provided the insurance necessary to protect an investor's purchase. 2. Before the FHA, only 40% of households owned homes. 3. Now more than 3 of homeowners now have a mortgage loan. 4. During the Depression 10% of homes were in foreclosure. 5. Mortgage debt was equal to 20% of total household income in 1949. 6. Mortgage debt rose to 73% of total household income by 2001. 7. In 2008 2.75% of homes were in foreclosure. Mortgage loans, in one form or another, have existed for centuries and have been observed across the world. Changes to loan models were slow and offered very few options. In light of the Great Depression during the 1930s, a rapid shift occurred that changed the very nature of mortgage lending. THE EVOLUTION OF THE MORTGAGE INDUSTRY 1. The Very Beginning - Inaccessible Terms Until the 1930s, single family mortgages were very different and only available for short 5- or 10-year terms. Rough Structure - Massive Defaults 2. The Great Depression caused property values to decline causing 250,000 defaults per year between 1931 & 1935. Adding Necessary Components - Birth of Government Oversight 3. Federal government created three housing institutions: The HOLC in 1933, the FHA in 1936 the FNMA in 1938. Insulating the Industry - Lower Payment Requirements 4. The FHA lowered down payment requirement which increased the debt allowances, increasing LTV ratios to 80 or 90%. Protecting Walls Installed - Mortgage Qualification Rules 5. The FHA started qualifying applicants on their ability to repay. Paving a Path - More Accessible Terms 6. The FHA lengthened loan terms to 15 and 30 years. Something to Stand On - Construction Quality Standards 7. The FHA set construction quality standards to ensure homes would outlast their securing loans. Adding the Essentials - Stabilizing Monthly Payments 8. The amortization of loans was created, allowing borrowers to make incremental payments. Finishing Touches - Refreshed Rules 9. After the 2008 subprime mortgage crisis, the government added further protection for consumers such as the CFPB. Final Walkthrough - A Stabilized Market 10. Rigid lending standards and added federal oversight has created the current stabilized housing industry. Resources: • http://www.mbaa.org/newsandmedia/presscenter/64769.htm • http://repository.upenn.edu/cgi/viewcontent.cgi?article=1000&context=penniur_papers • http://articles.latimes.com/2013/jan/10/business/la-fi-free-and-clear-20130110 • http://home.howstuffworks.com/real-estate/mortgage2.htm • http://www.mortgagecalculator.org/helpful-advice/american-mortgage-history.php loans.org