References to mortgages were made as early as circa 500 B.C. in the Hindu Laws of Manu. One of the verses discussed what a judge should do if a fraudulent mortgage or sale occurred. In the Western world, the concept of a mortgage can be traced back to the 14th century in England.
In 1781, the Continental Congress chartered the first bank of the United States, the Bank of North America. It was established to print money, purchase securities (stocks and bonds) in companies, and lend money. The bank’s owner or family members supervised the offering and servicing of loans. In the late 1700s and early 1800s, local and state commercial banks began offering mortgages to farmers.
“The U.S. mortgage before the 1930s would be nearly unrecognizable today,” according to “The American Mortgage in Historical and International Context,” an academic paper by Richard K. Green of George Washington University and Susan M. Wachter of the University of Pennsylvania. “It featured variable interest rates, high down payments, and short maturities. Before the Great Depression, homeowners typically renegotiated their loans every year.”
During the Great Depression, there were a large number of home foreclosures, typically 250,000 per year from 1931 to 1935, according to Green and Wachter. As a result, the federal government began intervening in the housing finance market, creating the Home Owner’s Loan Corporation (1933), the Federal Housing Administration (1934), and the Federal National Mortgage Association (1938). These agencies took several steps that stabilized the housing finance market, including purchasing defaulted mortgages from financial institutions, reinstating the mortgages, and converting them from variable-rate, short-term, non-amortizing mortgages into fixed-rate, self-amortizing, long-term mortgage products—fueling both investor and homeowner confidence.
The U.S. economy boomed after the end of World War II. Home ownership rose from 43.6 percent in 1940 to 64 percent in 1980, but declined slightly to 63.5 percent in 2016 (down from a peak of nearly 70 percent in 2004—before the Great Recession, which was caused in part by the subprime mortgage crisis). As home ownership grew, demand increased for mortgage bankers to assist potential property buyers.
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