Real Estate Bargains and Deals

History of the Home Mortgage

Almost everyone knows what a mortgage is as either they, or someone they know, has one. For those living under a rock, a home mortgage is a loan to buy property. But how did this loan come to be? What is the origin of a home mortgage? The concept of home mortgages was first seen in twelfth century England. It was a common law that protected those that would loan out money for property purchases in cases where the debtor could no longer pay back his debt to the creditor. This essentially imposed a conditional sale and the debtor only had ownership of the property so long as all debts were paid. In cases where debts could not be repaid, the creditor would then claim ownership of partial or the entire property. When the settlers arrived in America in the 1700s, they brought with them the British concept of a mortgage. 

As ownership of land grew, mortgages did too and by the twentieth century they were readily available. However, in the early twentieth century, loans were not as easy to attain as they are nowadays. At that time, down payments reached up to 50%, and the term length was about five years. This all changed though in 1934 when the Federal Housing Administration was established. This administration insured financial institutions against debtors who would default on their loans. With FHA protecting the lenders, banks offered loans that were much more easily attained. Banks now offered 30 year plans with low fixed interest rates. This brought them stability and thus made mortgages even easier to attain. However, funds soon started to run out as more people borrowed and thus came the establishment of the Federal National Mortgage Association, or Fannie Mae. This did solve some problems but also caused more as it introduced a second mortgage market. 

This cycle of borrowing and repaying is what determines the mortgage market. The interest rates and term lengths of mortgages offered are dependent on the amount the financial institution has saved. Thus, when bad loans are given out and ultimately defaulted on, it has an adverse affect on the interest rates and consistently shift the economy. Just like a contract from the twelfth century became a loan program, the mortgage market is constantly growing and evolving. 

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