The Mortgage Bankers Association’s (MBA) Research Institute for Housing America (RIHA) has released a new report entitled Mortgage Banking in the United States, 1870-1940 authored by Professor Ken Snowden of the University of North Carolina–Greensboro. During that time, the mortgage banking industry in the United States developed into a dynamic and entrepreneurial sector that took on different shapes and developed a variety of different mechanisms to originate, service and fund mortgage loans.
Professor Snowden is a renowned economic historian who has focused on U.S. housing and mortgage markets in his research. He has written extensively on the development of the U.S. mortgage market before 1940 and is co-author of Well Worth Saving: How the New Deal Safeguarded Homeownership and co-editor of the forthcoming volume Housing and Mortgage Markets in Historical Perspective. He is currently working on issues related to the mortgage crisis of the 1930s: the transition from Building & Loans to Savings & Loans, the impacts of New Deal housing programs and the historical development of the mortgage banking industry.
“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, what we now have is account of nearly a century of mortgage banking progress and activity in America,” said Snowden. “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.”
Additional findings of note:
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.
“This study is an in-depth account of the development of the US mortgage market through much of the last 100 years," said Mike Fratantoni, MBA’s vice president of Research and Economics and Executive Director of RIHA. "What is fascinating to me is that many of the issues we continue to grapple with today, for example, the size of the government footprint in the mortgage market, were issues 100 years ago as well. Moreover, many of the features of today’s housing and mortgage markets are visible early in this history, particularly the prominent role of mortgage bankers who originate and service loans, connecting borrowers and end investors through their work.”