Mortgage Banking in the United States, 1870-1940

Abstract

Taken in concert with two previously written volumes on the mortgage industry that highlight the immediate post-World War II era and the 1963-1972 period, this study accounts for nearly a century of mortgage banking progress and activity in America. What emerges is a picture of a highly differentiated industry in the 1920s that began to focus more narrowly on federally sponsored mortgage products and a single funding channel during the 1930s and in the immediate post-World War II period, and then transitioned yet again to a more diverse business model by the mid-1960s. During their early pre-federal intervention periods, farm and urban mortgage bankers focused on three similar elements: •The use of informal guarantees or explicit mortgage insurance to protect and attract investors in the markets for whole mortgage loans; •The development of correspondent relationships with life insurance companies; and •A failed experimentation with European-style mortgage banking structures. The Federal Farm Loan Bank system and the FHA mortgage insurance programs that restructured both the farm and urban mortgage banking sectors shared three common features: •They each encouraged the widespread adoption of long-term, amortized mortgage loans; •They each created mechanisms to stimulate the inter-regional transfer of mortgage credit and the convergence of mortgage rates and lending terms across regions; and •They each established federal chartering systems for privately financed European-style mortgage banks to create active secondary markets for long-term, amortized loans.