Mortgage Lending

Resources for Improving Mortgage Lending Operations

  • What is Mortgage Lending?

    The purchase of real estate, except in a few circumstances, has always been a significant expense. Most buyers, especially today, lack sufficient funds on hand for the outright purchase of real estate, so they rely on mortgage bankers to advance them the money for the purchase, in the form of a loan guaranteed by the property itself. Failure to repay the loan allows the lender to recover the property from the debtor.
  • The History of Mortgage Lending

    The word "mortgage" derives from a combination of Latin words and means a "dead pledge," so called because the pledge was the debtor's agreement to forfeit his land if he could not repay the money, that pledge becoming "dead" when he repaid. Modern mortgages in the US and UK originate with the English Common Law's formation of property rights after 1176. By the early thirteenth century, property rights had become increasingly secure in England such that real estate, always a source of wealth, could be pledged as security for a loan and therefore became more liquid. Initially the land was already the borrower's property - the borrower effectively used it as collateral for a cash loan. By the twentieth century, however, land came to be both the intended use of the loan, the purchase, as well as the security for it. Mortgages had become relatively common in the early twentieth century, although borrowers were still expected to have a down-payment of as much as 50% and maturities of mortgages remained relatively short - many mortgages were arranged for only five years, while some borrowers renegotiated the terms of their mortgages every other year.

    The Great Depression substantially changed mortgages in the US. Because of the widespread economic turmoil, borrowers found it increasingly difficult to make payments, and lenders experienced significant shortages of capital available to make loans. In an effort to respond to the crisis, the US Federal Government created the Home Owners Loan Corporation in 1933 - later replaced by the Federal National Mortgage Association (Fannie Mae) - and the Federal Housing Administration in 1936. The groups were designed to standardize mortgages in the US and to protect both borrowers and lenders. Modern mortgages became widespread in the decades after World War II, and in 1970 the US government created the Federal Home Loan Mortgage Corporation (Freddie Mac) to expand home ownership even farther. Additionally, in 1977, the Federal Government passed the Community Reinvestment Act to reduce discriminatory lending and encourage broader home ownership. The law did increase home ownership after the 1970s, but contributed to the issuance of less-secure mortgages.
  • Modern Trends in Mortgage Lending

    The financial collapse of 2008 substantially injured the housing market and the mortgage industry in the United States. Sub-prime mortgages have received the lion's share of the blame for having begun the economic turmoil. Mortgage banking, as with nearly all sectors of the financial industry, have come under close scrutiny in the past several years, and were part of the focus of the Dodd-Frank regulation of 2010.

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