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July 6, 2012

Historical Echoes: The Creation of the Contemporary U.S. Mortgage

Megan Cohen, New York Fed Research Library

Residential mortgages, as they are known in the United States, are fairly modern creatures. Their origins lie in medieval England, but they have contemporary roots in the Great Depression.

Before the mid-1930s, prospective homebuyers confronted difficult borrowing terms for a mortgage, such as a loan limit of 50 percent of the property’s market value, a five- to seven-year repayment schedule, as well as a balloon payment consisting of the entire principal due at completion.

In reaction to the declining state of the housing market during the Great Depression, Congress passed the National Housing Act of 1934. The Act resulted in the creation of the Federal Housing Administration and ushered in a dramatic change in American mortgages and housing. The Federal Housing Administration helped create a more favorable set of borrowing terms for U.S. homebuyers—including the elderly, lower-income households, and veterans—as well as the contemporary U.S. mortgage, with a fixed interest rate and thirty-year amortization schedule.

The past few years have brought monumental upheaval to the U.S. mortgage market. The Federal Reserve Bank of New York, though its Regional and Community Outreach function, has created an information resource on mortgage and foreclosure data in the New York City metropolitan area. Visit the Regional Mortgage Briefs site to review an extensive set of analytics on mortgage and foreclosure issues in a variety of regions in New York and northern New Jersey.

The views expressed in this post are those of the author and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author.

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