Editor: David Reiss
Brooklyn Law School

January 3, 2014

A New History of Mortgage Banking

By David Reiss

Yes, I know, a dry subject for most. But for some nerds, there are lots of insights in Mortgage Banking in the United States 1870-1940. The author, Kenneth Snowden, highlights this finding, which gives more credit to the Federal Farm Loan Bank system for the development of the modern mortgage market than do many other histories of the industry:

The Federal Farm Loan Bank system and the FHA mortgage insurance programs that restructured both the farm and urban mortgage banking sectors shared three common features:

+     They each encouraged the widespread adoption of long-term, amortized mortgage loans.

+     They each created mechanisms to stimulate the inter-regional transfer of mortgage credit and the convergence of mortgage rates and lending terms across regions.

+     They each established federal chartering systems for privately financed European-style mortgage banks to create active secondary markets for long-term, amortized loans. (2)

This history provides a lot more detail than one finds in standard histories of the American mortgage market, including much about the early history of securitization. Writers in this area (myself included) tend to think that securitization was birthed in the 1970s, but Snowden documents some proto-securitizations in the early 20th Century. I will come back to this report in a later blog post, but I highly recommend it to serious students of the mortgage markets.

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