History

Understanding the history behind mortgage loans can allow us to fully understand the many facets of a mortgage loan.

The word mortgage can be broken down into two Latin terms ‘mort’ and ‘gage.’ ‘Mort’ comes from the Latin term mortuus which means ‘death’ and the latter half of the word is middle English and means ‘pledge’. Mortgages have been around for centuries with evidence of usury throughout history as well as in todays present era. This may be why the term is rooted in such grim verbiage. Imagine being a tomato plant growing in the Sahara Desert and the neighboring cactus (lenders) refuse to share water! I feel parched thinking about it.

Mortgage bankers financed the agricultural expansion in the Great Plains and real estate development in expanding urban markets through the nation, as well as the nationwide shift to ownership of single-family homes after 1900 (Dr. Snowden, 2014). It was through the expansion and development of “the west” that the contractual structures used by mortgage bankers truly developed. This is the era when we began to see mortgage insurance products, more predatory lending, and idea of buying back loans.

After the great depression, the government enacted several policies that provided more protections for home loan borrowers (The Fair Housing Act (FHA), Housing Act of 1949, and Home Owners Loan Act etc). These polices strived to make homeownership possible for more Americans. Government backed loans like FHA made lenders more comfortable giving loans to everyday people.

So basically, a mortgage is the bank or financial institution fronting the purchase on your behalf and collecting monthly payments from you until both the principal and interest are paid in full (in generally 30 years).

 

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