The History of Mortgages

In order to understand mortgages, it is best to start with their history and where the idea of a mortgage actually came from. It all began as far back as the 12th Century, when creditors were protected by law by giving them an interest in their debtor’s property. This protected the debtor in case the creditor(s) did not pay for their debt.

The word mortgage came from the words mort and gage. Mort originated from the Latin word mort meaning death and gage, which is a pledge to sacrifice something valuable in case a debt is unpaid. Therefore, the word had the same meaning as a dead pledge. A debt (pledge) that is paid off is dead and a property is dead if the creditor fails to pay for the debt.

The system of a mortgage was brought back into the Americas and continued its organized and more developed programs in the early 1900s. Before this time, mortgages were very difficult to have. Large down payments were required and the terms of the loans were as short as 5 years before having to pay for the rest of the loan. This system continued until the Great Depression, which caused a lot of homeowners and lenders to suffer from the economic recession.

The Federal Housing Administration (FHA) was created in 1934 to stimulate the economy and to increase homeownership by creating programs to make mortgages more affordable for homeowners. It insured mortgages and regulated their terms and interest rates.

In 1938, the Federal National Mortgage Association (FNMA or Fannie Mae) was established and initially authorized to provide secondary money market for FHA loans. The secondary market provided liquidity to participants of real estate loan investments.

In 1965, the Housing and Urban Development Act was created to execute policy on the housing market and the cities they are in. In 1968, HUD instituted FNMA to become a publicly owned government sponsored enterprise (GSE) and a leading participant in the secondary market.

In 1970, Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) was created to control further monopolization exercised by Fannie Mae. Its purpose is very similar to Fannie Mae’s in that it is a stockholder-owned corporation and is authorized to make loans and loan guarantees.

As time passed, more improvements developed resulting in more, complex areas of the industry. The following blogs will present information on different arenas of the mortgage industry, from institutions that regulate, govern, and oversee the activities that take place to the available programs and guidelines within these different arenas.

Next topic: In depth information on Federal Housing Administration (FHA)