Yesterday I was relecting back to when I first completed my Mortgage license. The licensing course had a great introductory chapter that included talking about the history of Mortgages. That led me yesterday to re-visit and “dig up” some information on the topic. I found a great article written by G. Marples from www.thehistoryof.net.
Mortgages are a part of our everyday lives – something we wouldn’t normally think about as far as their origin. You would probably be surprised to learn how far back the history of home mortgages go. But no matter how many years old this system is, the basics have never changed – the high value of real estate puts it beyond the reach of most people. So the only way to buy property is to borrow money. And that’s what they did as far back as the year 1190!
Mortgages started in England
The beginnings of a mortgage system have been found, as early as 1190. English common law included a law that would protect a creditor by giving him an interest in his debtor’s property. According to this law, the mortgage was a conditional sale. Although the creditor held title to the property, the debtor could, in the event the debt wasn’t paid, sell the property to recover his money.
The history of the actual word “mortgage” is very interesting. In the word “mortgage”, the “mort”- is from the Latin word for death and “gage” is from the sense of that word that means a pledge to forfeit something of value if a debt is not repaid. So mortgage is literally a “dead pledge”. It was dead for two reasons, the property was forfeit or “dead” to the borrower if the loan wasn’t repaid, and the pledge itself was dead if the loan was repaid.
The great jurist Sir Edward Coke (1552-1634) says of the word “mortgage”: It seemeth that the cause why it is called mortgage is, for that it is doubtful whether the Feoffor will pay at the day limited such summe or not, & if he doth not pay, then the Land which is put in pledge upon condition for the payment of the money, is taken from him forever, and so dead to him vpon condition, &c. And if he doth pay the money, then the pledge is dead as to the Tenant, &c… A pretty old English way of saying the same thing. Interesting to note that the principle hasn’t changed throughout the years.
Mortgages came to the Americas
As pioneers moved from Europe to settle in America, they brought their systems with them. As land ownership increased, so did the need for mortgages; so much so that by the early 1900s, they were already widespread and readily attainable.
However, not everybody could get a mortgage. In those days, those seeking to buy property were often required to pay a 50% down payment on a 5-year mortgage. So, to buy a $10,000 house (wouldn’t that be nice today), the borrower had to have a $5,000 down payment and pay interest for 5 years. At the end of the 5 years, the unpaid (and unchanged) balance of $5,000 would have to be either paid or refinanced.
This system continued through to the Great Depression, when lenders had no money to lend, and borrowers had no money to pay. The whole system collapsed with thousands of foreclosures. Mortgages were just not available. More money and a more consistent plan was needed.
The emergence of the Baby Boomers upped the ante
World War II dramatically changed the mortgage scene. War veterans were coming home and entering the workforce. They became avid consumers – the economy boomed. And with it, so did the demand for mortgages.
In 1938, the Canadian government, introduced the National Housing Act (NHA). In 1954, they followed the United States’ example by insuring mortgage loans. The Bank Act was also amended to allow Canada’s chartered banks to lend money for mortgages. Everybody was recognizing the growth the housing market was contributing to the economy.
Then, throughout North America, as baby boomers entered the workforce, including women, double-income families became the norm. They wanted larger, more expensive homes to fit their income and lifestyles. More mortgages were needed.
Mortgage lenders are challenged for more
In the 1950s and 60s, most mortgages were 20-30 years. However, in the 1970s, interest rates rose rapidly, and the system had to adjust. Mortgages were reduced to 1, 3 or 5 year-terms, although even the 5-year mortgages were rare in the early 1980s when interest rates climbed to more than 21%. By 1998, the 5-year mortgage rate had fallen to an average of 6.99% and the 1-year rate to 6.5%.
So you can see the amount of money floating around in the mortgage industry today. And with that amount of money at stake, you can understand why the credit business is so important – for both sides. The credit bureaus monitor your credit report; you monitor the information the credit bureau has on you. So, credit monitoring ties in very closely with the history of home mortgages.
The home mortgage industry is constantly changing, constantly looking for ways to expand homeownership among lower-income and moderate-income families and individuals. One of the latest developments in the last few years has been the reverse mortgage, where a homeowner borrows against the value of a house to receive a line of credit or monthly payments. New programs are constantly being created.
There are thousands of financial programs available for every consumer in every financial situation. There’s a right program for you. And now that you’re familiar with the history of home mortgages, you can see that some things never change – you still want that property – and you still need that “dead pledge”.