The concept of mortgages to buy property has been around for hundreds of years, but the 30-year property mortgage is a much newer idea. The 30-year mortgage came into existence as a solution to financial problems that were common during the Great Depression and is now the most common home loan available.
History
The first evidence of mortgages occurred in England during the 12th century. The concept was much the same as it is today in that if the borrower was able to repay the property loan, the property was theirs. If the borrow could not repay the loan, the lender could take possession of the property.
Time Frame
The idea of the mortgage made its way to the United States and mortgages were popular in the early 1900s. The terms were much less favorable to buyers than they are today and home ownership was limited to roughly 40 percent of the population.
Significance
At the time of the Great Depression, home buyers were typically asked to make a down payment of one-third of the sales price and loans were only extended for periods of five to 10 years with interest rates reaching 8 percent. The restrictive lending system ran into trouble during the depression and the number of property loans dropped from 5,778 in 1928 to just 864 in 1933.
Prevention/Solution
In an effort to prevent foreclosures, President Franklin D. Roosevelt pushed for the passage of the Home Owners' Loan Act in 1933. This bill established the creation of the Home Owners' Loan Corporation, which made loans to those in danger of losing their homes. The lending terms were much more generous than were found in previous mortgage loans, as loan amounts of up to 80 percent of a home's value were made and the interest rate was five percent. Additionally, home owners could borrow money for up to 25 years.
Benefits
The idea behind the Home Owners' Loan Corporation proved to be extremely popular, with nearly 40 percent of all buyers applying for the new loans. Not all of the applicants could be accepted, so Roosevelt established the Federal Housing Administration in 1934 to promote home loans by the private sector, as FHA loans were guaranteed by the government. The FHA extended mortgages to 30 years to make purchasing a home more affordable. The FHA loans prompted the creation of the Federal National Mortgage Association in 1938 to make even more money available for home buyers.
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