Since the beginning of times, mankind has always had a fundamental desire to mark its own territory and an attachment to its own place and space. Owning a
home has always been a basic human need, desire and a requirement for centuries. Consequesntly,
the mortgage industry in the United States was built on the desire of
its citizens to own a dwelling. Mortgages in the United States were initially started by the
Insurance companies rather than the banks. The idea was to take over the
property by the Insurance Company in case of a default rather than
making money in fees and service charges. The development of the farm
mortgage banking in the United States during the late nineteenth century
was driven by the growth in agricultural production and population to
the South and West, 1900 - early 1930's- From
the early 1900's thru the 1930's, buying a home was a much different
process. Back then, the buyer would have to make a huge down payment
with a balloon payment due after a a very short term. 1913- The
Federal Reserve System (FRS) created in 1913 was the first step taken towards
the modern mortgage industry. This step established a framework for the
government involvement in mortgage lending. The Federal reserve
established a charter for banks allowing them to make real estate loans. 1932- The Federal Home Loan
Bank Act of 1932 was created to allow Federal Home Loan banks to lend
money to savings and loans, credit unions and savings banks so that they
could also finance home mortgages. 1933- The Banking Act of 1933 further assisted in creating the Federal Deposit
Insurance Corporation (FDIC) to Insure deposits and to protect
consumers against bank default. In addition, FDIC allowed banks to continue to have a source of funds to make more home loans. 1934- The
National Housing act was signed by President Franklin D Roosevelt on
June 27th, 1934. The Federal Housing Administration (FHA) was created by
the Act. The (FHA) was created to help the housing Industry recover
from the Great Depression. Originally, FHA was not intended to fund
loans but to provide mortgage insurance to banks to protect banks
against losses incurred by home loans. As a result, FHA allowed lenders
to commit more funds to home mortgage loans.Today, FHA is the largest
insurer of mortgages in the world. 1938- The
Federal National Mortgage Association (FNMA or Fannie Mae) was created
that increased the liquidity in the market and allowed for more money to
become available for lenders. 1965- After
WW11, the demand for housing boomed. The US Department of Housing and
Urban Development (HUD) was then established to provide financial
incentives to renovate and build homes within certain urban areas.
Later, HUD expanded its influence over many areas of the housing market. 1968- FNMA was privatized in
1968 and became a government sponsored entity (GSE). Government National
Mortgage Association, (GNMA or Ginnie Mae) was created at the same time
to secure government issued mortgages (like FHA loans). The two
entities allowed loans to be secure and enabled them to be sold in the
secondary market for profit. 1970- The Federal Home Loan Mortgage Corporation (Freddie Mac, FHLMC) was created to work hand in hand with Fannie Mae. 1977- The
Community Reinvestment Act was enacted by Congress in 1977, which
analyzes a bank's success or failure to reach out to the lending
communities it serves. 2010- In
2008 and 2009, The Great Recession was caused in large part by the
housing market. Due to subprime lending in the United States, a housing
bubble was created that lacked liquidity. The housing bubble peaked in
July 2006. When the housing bubble burst, home prices across the United
States reported record breaking price drops. Subprime lenders had been
giving out mortgages to people that did not qualify due to lack of
regulation. Predatory techniques were used and home loans were given to
unqualified buyers to purchase homes that they could not afford. As a
result, many homeowners defaulted on their mortgages across the country. As
a result, the Federal Government passed the Dodd-Frank Wall Street
Reform Act of 2010 (Dodd-Frank), which put into place many regulations.
It created the Consumer Financial Protection Bureau (CFPB) to begin
proposing new federal regulations, supervise the mortgage industry and
enforce federal law in hopes that nothing like the Great Recession of
2008 and 2009 would ever happen again. |