Most homeowners have a mortgage, but few every wonder where they came from. In fact, this lending product that allows someone to buy a home while putting down only a small percentage of the purchase price has been around for a really long time!
The word ‘mortgage’ itself brings us back through history. The etimology comes from two Latin words: “Gage,” which means “pledge,” and “Mort”, which means “death.”
So a “mort-gage” is really a “pledge to death?” Luckily, they were talking about the death of the loan instrument when it was paid off, not the homeowner!
Today, we’ll cover a timeline of mortgage history in the United States, starting all the way back in the 1700s when our nation was brand new.
A timeline of the mortgage history in the U.S.:
1781 – The first legitimate commercial bank is founded in America, introducing a new system of banknotes for exchange, government involvement, and decreased liability for bankers, spurning the modern mortgage.
Early 1800’s – Commercial, mutual savings, and property banks expand their role. Each bank specialize in the needs of regions they serve, for instance, rural banks issue mortgages to farmers.
1820-1860 – The number of banks increases dramatically, as mortgage loans rise from 55 million to 700 million dollars in that period.
1864 – The National Bank Act helps develop a national currency to assist in financing the Civil War. This currency replaces bank and state bonds, though investment in mortgages is prohibited.
Late 1880’s. The United States mortgage market faces disruption, falling into a disorganized network of uneven allocated mortgage loans. Regional favoritism by banks sees favoritism in the Northeast and higher rates in the West.
1905 – Only 4 in 10 Americans own homes. In urban areas, up to 75 percent of people are renters.
1929 – The Great Depression sees a collapse of the US financial system, including banking collapses in which they called mortgage notes due in a cash crisis. 1 in 10 US mortgages end up foreclosed. Property values drop and consumer confidence and bank lending are almost nil.
1934 – the modern mortgage is born as government intervention stabilizes the banking industry and injects confidence and safeguards into mortgages and lending. This government intervention in mortgages sets it apart from rest of world.
As part of the New Deal, the Federal Housing Authority was established and enacted changes in mortgages like lower down payments, 30-year amortization, 80 and 90 percent loan-to-values or higher, and universal standards for qualifying as well as construction standards.
But mortgages were first introduced not as a brainchild of banks but insurance companies, as a way to make money by seizing homes if people didn’t pay. Initially, mortgages were interest-only with a big balloon payment after 5-7 years and homeowners had to put at least 50 percent down.
1938 – Fannie Mae was founded by the government.
Post World War II – As troops returned home, the G.I. bill for veterans, was enacted, along with the VA mortgage insurance program.
1949 – 1960’s – The measures to stabilize and ensure banking confidence work, with mortgage debt to income ratio rising from 20 to 73 percent during this time, and mortgage debt to household assets ratio rising from 15 to 41 percent.
1968: The Housing and Urban Development Act of 1968 looks to promote lending and home ownership to people all over the country.
1970 – The Federal Home Loan Mortgage Corporation was established to help promote home ownership.
1970- Freddie Mac is chartered by Congress.
1974 – the Equal Credit Opportunity Act seeks to prohibit financial institutions from discriminating based on race, color, religion, national origin, sex, age or marital status.
1977 – the Community Reinvestment Act is enacted to promote lending by banks and savings and loan associations and home ownership among minority and low income groups, ostensibly eliminating the practice of “redlining.”
1980’s – Adjustable rate mortgages returned to the market under the guidance of the Federal Reserve bank.
1986 – the Tax Reform Act of 1986 eliminated tax deductions for interest paid on credit cards, encouraging the practice of using home equity lines of credit and second mortgages.
1991- A US recession looms and new construction prices fall.
1991–1997 – housing prices are flat until we go into the tech bubble.
1997 – Important tax legislation is enacted, with the Taxpayer Relief Act, including certain exclusions on capital gains, encouraging people to buy bigger, more expensive homes, vacation homes, and rental properties.
2000-2003 – Early 2000’s recession. Government mortgage institutions accounted for nearly 43 percent of the total mortgage market
2001 – The US Federal Reserve lowers the Federal funds rate an unprecedented eleven straight times, from 6.5 to 1.75 percent.
2003 – Fannie Mae and Freddie Mac buy $81 billion in subprime securities.
2004 – US home ownership increases to 69.2 percent, the highest of all time.
2004–2005 – Arizona, California, Florida, Hawaii, and Nevada record price appreciation in excess of 25 percent per year
1997–2005 – Mortgage fraud increases by 1,411 percent!
2006 – $600 billion of subprime loans are originated, accounting for 23.5 percent of all mortgage originations.
2007 The Subprime Meltdown – New century, American Home Mortgage, and other huge subprime lenders file bankruptcy. Countrywide, the nation’s biggest lender, narrowly avoids BK, while Ameriquest goes out of business.
2008 – according to the National Association of Realtors, 2007 had the largest decrease in existing home prices in 25 years
2009 – A total of 3,957,643 foreclosures were filed on 2,824,674 properties during the year, up 21 percent from 2008.
2010-2012 – the real estate market finds its “bottom,” as record foreclosures, defaults, modifications, and short sales sweep the nation. New regulations are enacted. Housing tightens and lending standards become more conservative. Institutional investors snatch up REOs and distressed sales.
2013 – A total of only 801,359 properties receive foreclosure notices during the first half of the year, a 19 percent decrease over the previous six months, and 23 percent down from the same period in 2012.
2015 – Historically low interest rates and increased consumer confidence bring the real estate market roaring back. Yet everyone is still watching the Fed for the gradual rate increases they’ve been promising. Credit standards, loosened every year since 2009, make it easier than any time since the real estate bubble to get a mortgage loan.
2016 and beyond – The housing market finds a great balance with strong job numbers and still historically-low interest rates, marking seven years in a row the average 30-year fixed loan has been below 5 percent. Everyone is still watching the Fed for interest rate hikes, but they appear to be stalled on news of Brexit and other international turmoil. Homebuyer demand is red hot in most markets, particularly with entry level housing or move-up buyers, who look to cash in on equity gains over the last few years.
With the combination of these factors, it remains one of the best times in history to refinance a mortgage loan and save money.