Section 1 _A
Brief History of Mortgages: Then & Now!
_________ by
Patricia A. Allen
When
your grandparents or parents wanted to purchase a home in the
60s or 70s, they most likely gave their friendly neighborhood
banker or savings & loan a call, or, more often than not,
dropped by at the local hometown office for a casual visit with
the loan officer they knew personally. After a hearty handshake,
they'd leave with either a 30-year fixed rate or 15-year fixed
rate loan. If they were not that well known, the loan application
would be taken to the Loan Committee who would let them know in
several weeks if they qualified or if they didn't. Yes or No answers
were given with little if any explanation. If they were homebuyers
shortly after World War II, they may have qualified for one of
the first upgraded Veterans Administration (VA) loans which were
government-insured.
This is the same time period that Savings &
Loans began active mortgage financing, initially offering mortgages
to their deposit customers and expanding to offer mortgages to
the community at large. This created a positive impact, accelerating
the purchase of homes.
The Savings & Loans' financial problems
were partly created by the good will they initially displayed
in issuing mortgages. They had offered fixed-rate loans which
they were servicing themselves (you always sent your monthly payment
to the financial institution that first granted you your mortgage
loan); inflation hit hard in the late 70s and early 80s with the
institutions not earning enough interest return on deposit accounts
and the relatively low fixed-rate mortgages weren't providing
any additional revenue to offset this trend. As interest rates
climbed, the A.R.M. (Adjustable Rate Mortgage) was developed to
offset this situation; however, after the initial brief fixed
period of the mortgage, homeowners found their interest rate reaching
such excessive levels on their mortgage payments that they were
faced with losing their homes.
The birth of quasi-governmental agencies began
to help assure Americans that they would be able to buy a home
and not have to lose it. You know them today as F.H.A. (Federal
Housing Authority); F.N.M.A. (Fannie Mae); F.M.A.C. (Freddie Mac),
etc. Wholesale 'Investors" developed their own mortgage programs
separately from these agencies and evolved into the mortgage banking
network of wholesale loan programs available today.
None of these agencies or investors (called
the 'Secondary market') originate wholesale mortgages (offer wholesale
mortgage loans directly to the public). However, Wholesale Investors
may have Retail Divisions which offer interest rates higher than
their wholesale division.
This has caused the world of mortgage
lending to become a complex and often mystifying arena; not only
to a borrower, but the professional loan consultant is met with
the constant requirement of having up-to-the-minute knowledge
of a seemingly infinite number of ever-changing variables in mortgage
lending. The proper assimilation of that knowledge and the ability
to translate these indicators to your needs, largely based upon
economic trends, is our job. We have dedicated ourselves to this
end. We have been told repeatedly that we do it best. This fuels
our desire to exceed excellence in service to you.
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