Mortgages can be traced back to England.  The concept made the trip on the Mayflower with the Pilgrims.  In fact, in colonial days and beyond, the typical transaction included putting 50 percent down on a piece of land or property, with the balance due in five years.   Of course, the values of homes were much lower then, but so were incomes.

• When the Depression fell upon America, the source of funds for mortgages from banks was among the casualties of the times.  Banks had no money to lend and the mortgagors had no money to repay the lenders.

• It wasn’t until after the Depression that the concept of monthly installment, or amortized payments came into being.  The Federal Housing Administration was created, and loans became insured.  Since the banks had insurance against the borrower defaulting, money became more available.  The 30-year loan became a reality, which provided the consumer with lower, affordable payments.

Prior to World War II, the Federal National Mortgage Association was created to provide liquidity – that is, mortgages were sold as securities, creating a secondary mortgage market.   This also aided the consumer in that rates and terms became more stable, rather than geographically sensitive. 

When the Baby Boomers came of age, the demand for housing skyrocketed, causing quite a housing boom.  Higher incomes, along with the two-income household became more common, and homes became more affordable, or a larger, more expensive home was purchased because the couple would qualify for the loan with both incomes. 

As time marched on, the American Dream was one that not all Americans could achieve, so the government began to encourage a wider range of loans, with less restrictive qualifying criteria.  Mortgage products became more “flamboyant,” and the onset of little or no documentation loans began.  These loans allowed the buyer to provide virtually no proof of employment, income, or assets, and offered a similar rate to the full documentation loans.  Also during this time, individuals who were credit challenged were offered loans that would allow them to purchase their home, often with a “reward” or lower interest rate if they continued to make payments on time for a pre-determined period of time.

Self-employed individuals were able to be approved (many write off a good bit of their income) with excellent credit, or just by showing bank statements to prove the levels of their gross income.  Deductions and business expenses were not considered in qualifying.

We all know what happened in 2007 and 2008 – the credit crisis hit not only mortgages, but also our entire economy.  Many economists are now saying that the recession is over, and has been.  However, the mortgage products available today are similar to those the country saw in the 1970s and 1980s, in that income, asset, and employment information are required on virtually every loan approved. 

Arguably, many of the loans were doomed to fail.  While this can be debated, it should also be noted that many of them did not fail, and many hard working individuals who otherwise may never have had the opportunity to own a home did achieve home ownership. 

 We have much to be thankful for this season – our country did not suffer the horrific economic set back in the first decade of this century that it saw in the 1930s, and while there is still much to be done on the employment and economic fronts, it is reassuring that we have come to a new normal in a short period of time. For those that want a new home, I encourage you to keep shopping, as there are great values out there. Happy Thanksgiving, and remember, “Your Home Loan Matters.”