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The History of the American Mortgage Loan

In the past century, the housing economy has shifted dramatically.

Mortgage lending used to be an unsecured investment so it was unavailable to a majority of borrowers. With the advent of the Federal Housing Administration (FHA) in 1936, as well as FNMA (which later became Fannie Mae) and the HOLC and in similar years, the housing market expanded.

But the change did not occur overnight. Similar to the many steps required to build a home, creating a stable mortgage lending industry took time.

When a contractor builds a home, the foundation must be present. Similarly, in order to stabilize the market, loan terms needed to be lengthened. Mortgage lenders used to offer loans for extremely short repayment period, such as five and 10 years. These were later expanded to 15- and 30-year terms, increasing the buying potential for each homeowner.

Years later, the FHA enacted rules to protect both the borrower and the lender. Just as a home needs protecting walls, similar lending protections ensuring that a borrower could repay the mortgage loan debt, were passed.

Other important steps such as the amortization of loans, construction standards and creating the CFPB helped to transform the mortgage loan industry into the complex and protected industry that it is today.

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