A Century's Milestones in Residential Lending.

Author:Mozilo, Angelo R.

AS WE USHER IN THE YEAR 2000, the U.S. mortgage industry can claim an impressive array of accomplishments. Today, outstanding mortgage debt totals approximately $4.4 trillion, making it one of the largest, most liquid debt market segments in the world--a market far surpassing the long-term U.S. Treasury debt of $2.5 trillion. Homeownership levels have reached a historical high, which, when tallied for 1999, should be nearly 67 percent.

To understand how we've reached these remarkable heights, we can look to a century's worth of milestones--some assisted through government support, others representing the sheer determination of competitive business professionals.

One hundred years ago, buying a home meant borrowing purchase funds from a friend, relative or local businessperson. Individuals were the largest category of mortgage lender. In our larger communities, savings and loan organizations--then primarily known as building and loans--were the other major source of mortgage financing. By 1900, approximately 5,800 of these institutions held about half a billion dollars in mortgage loans. On a smaller scale, savings banks and state-chartered banks also made home loans.

During the same time, independent mortgage companies numbered approximately 200. Throughout the latter half of the 19th century, mortgage companies acted as conduits between East Coast investors and frontier farmers who needed financing. Rather than purchase loans, most of these mortgages were production loans--funds which bought equipment and supplies, not a property itself.

In 1914, these mortgage companies formed a professional organization called the Farm Mortgage Bankers Association, to ensure lenders' concerns were understood in Washington, D.C. Responding to both an agricultural depression and a nationwide population shift to urban centers following World War I, the organization changed its name in 1923. The word Farm was dropped, creating the Mortgage Bankers Association of America (MBA) and reflecting its focus on residential mortgage lending.

When discussing the industry's milestones, we should keep in mind the structure mortgage loans took during these times. With few exceptions, mortgage loans were primarily five-year, interest-only, 50-percent LTV instruments with principal due at loan end. Principal on a mortgage loan was rarely repaid; most borrowers simply refinanced at the end of five years. This structure proved disastrous after the Great Crash in October...

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