Mortgages have been around as long as houses, right? After all, who could possibly pay cash for something as expensive as a home? Get ready for a surprise: mortgages in America have been available only since the late 19th century. Before then, people who needed a loan to buy a home could rarely get the money from banks, because you had to have a substantial amount of cash up front. If you had that much cash already, who needed a loan in the first place?

 

But this is America—and when American business sees a consumer need—it figures out a way to satisfy it. So the idea of the ‘mortgage broker’ was born, to create a new source of financing for homebuyers. That idea quickly gained momentum, as Americans began to move westward and the need for more and more real estate financing soared.

 

Fast-forward to today, and mortgages are the key to making home ownership possible for millions of American families. Along the way, mortgages have continued to evolve to offer more options and provide greater security for both the borrower and lender. Let’s take a closer look at this evolution—and what it means to homeowners today.

 

 

 

It’s the 1930s and the height of the Great Depression. Tens of thousands of people were losing their homes to foreclosure. To slow the trend President Franklin Roosevelt introduced the New Deal, and the opportunity for home ownership in America changed forever. The Federal Housing Administration (FHA) was created to help mortgage lenders manage risk more effectively. Suddenly, lenders were able to give more people the mortgage financing they needed to confidently become homeowners.

 

What opened the door for so many people? The FHA created a new type of mortgage, and the timing couldn’t have be better. Back then, only four in 10 families owned their own homes—and with good reason. Mortgages were only available for half of a property’s market value (making the down payment 50%!), the loan term was usually spread over just three to five years and ended with a substantial balloon payment. No wonder so few people could afford a home.

The FHA’s new mortgage was revolutionary, lowering down payment requirements and extending the repayment period significantly. Today, homebuyers can put just a few percent down and take as long as 30 years to repay. The FHA also established another precedent: lending money based on a homebuyer’s ability to repay—versus simply knowing the buyer personally.

 

The FHA’s vision set the tone for the entire mortgage industry, which quickly embraced the opportunity to serve more customers and expand home ownership.

 

 

 

Once lenders were empowered to offer more mortgages with more favorable terms, the next challenge was just as daunting: where would all the money come from to meet the growing demand? More and more people wanted their own share of the American Dream. How would lenders satisfy the need?

 

Once again the federal government stepped in with a visionary idea, establishing the Federal National Mortgage Association. You may know it as Fannie Mae, the organization that buys FHA-insured loans to ensure a steady stream of new money for mortgage lenders to offer homebuyers.