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Residential Mortgage Lending: Principles and Practices, 6e

Residential Mortgage Lending: Principles and Practices, 6e. Chapter 1 History of Mortgage Lending. Objectives. After completing this chapter, you should be able to: Distinguish between title theory and lien theory .

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Residential Mortgage Lending: Principles and Practices, 6e

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  1. Residential Mortgage Lending:Principles and Practices, 6e Chapter 1 History of Mortgage Lending

  2. Objectives • After completing this chapter, you should be able to: • Distinguish between titletheory and lientheory. • Describe the mortgage lending activities of the early thrifts, mortgage companies and commercial banks. • Cite the effects of the Depression on financial institutions and their mortgage lending practices. • List and describe the function of the major federal legislation enacted to stabilize real estate values in the 1930s. • Identify the reasons for the rapid growth in single-family mortgage lending after World War II. • Identify the major consumer protection acts. • Cite the impact of deregulation, inflation, and high interest rates and other recent events on the ability of the average American family to afford housing.

  3. Objectives • After completing this chapter, you should be able to: • Understand the magnitude of the refinancing wave of 2001-03 and how the average age life of loan for a 30-year mortgage was only about three years during this period. • Understand the dynamics of the rapid expansion and collapse of the mortgage lending industry and real estate markets since 2000. • Be more aware of important regulatory activity in the near future.

  4. Highlights • Record years in total annual residential mortgage origination volume of more than $3 trillion in 2003, 2005, and 2006 - $2 trillion 2001. • 30-year record lows for fixed-rate mortgages. • Home ownership at a historical high of 69 % (2004) • Extensive use of Automated Underwriting systems and other technological changes.

  5. Highlights • Double the level of mortgage-backed securities (MBSs) outstanding, from $3.2 trillion in 2000 to a peak of $7.6 trillion in 2009, and rapid fall to $3.1 trillion in 2010. • Evolution in alternative types of mortgage instruments and nonconforming programs. • Ever-increasing dominance of the mortgage banking strategy. • Revamping of the entire federal regulatory and examination structure for mortgage lending.

  6. Landmark Federal Legislation • Home Owners Loan Act (1933) • National Housing Act (1934) • Federal Housing Administration (FHA) • Federal Savings and Loan Insurance Corporation (FSLIC) • Housing Act (1949) • Housing and Urban Development Act (1968) • Consumer Protection Act (1968)

  7. more Federal Legislation • Housing and Urban Development Act(1968) • Financial Institutions Reform, Recovery, and Enforcement Act (1989) • Home Ownership and Equity Protection Act (1994) • The Homeowners Protection Act(1998) • Housing Economic and Recovery Act (2008) • Dodd-Frank Wall Street Reform and Consumer Protection Act (2010)

  8. 2000–2010: THE RISE AND FALL OF THE SECONDARY MORTGAGE MARKET • Need for Additional Funds for Housing • The Role of Subprime Lending • Evolving Mortgage Lending Issues in the New Century

  9. What Do You Think? • Examine how the concept of private ownership of land has evolved since the days of the civilizations of Babylonia and Egypt? • How has the involvement of the federal government in real estate and mortgage lending allowed for growth in homeownership?

  10. What Do You Think? • The Great Depression was the beginning of modern residential mortgage lending. Examine the changes that occurred during this period and their importance to modern mortgage lending. • The 1960-1970 period witnessed the enactment of many major consumer protection laws/regulations. How have these federal enactments changed the way in which residential mortgage lending is conducted?

  11. What Do You Think? • What were two reasons for the stock market crash of 1987 and what was its impact on mortgage lending? • What role did subprime lending play in the mortgage industry events during 2000-2010? • What is the difference between the Title Theory and Lien Theory of mortgage lending? Which exists in your state?

  12. Check Your Understanding • Prior to the development of English common law, mortgage lending generally favored the mortgagor. • Under title theory, the title remains with the mortgagor, and the mortgagee has only a lien against the property. • In the U.S., little real estate financing was done on an organized basis until after the Civil War. • The first thrift institutions were created as temporary organizations, intended to exist only until each member purchased a home. • Early mortgage companies primarily financed farms, and sold the loans to wealthy East coast investors.

  13. Check Your Understanding • Commercial banks were originally organized to provide financing for farmland and homes. • Amortization of mortgages was non­existent before the 1930s. • Following the stock market crash in 1929, lenders were able to sell foreclosed properties at inflated prices and earn record profits. • Many states passed laws in the Depression years suspending foreclosures. • The Federal Housing Administration (FHA) was created in the 1930s to purchase or refinance defaulted mortgages.

  14. Check Your Understanding • Financial institutions suffered liquidity problems following World War II, due to the tremendous demand for housing by returning veterans. • During the Great Depression mortgagors had little difficulty refinancing their home mortgage loans. • Technology will continue to make mortgage originations easier for both borrower and lender. • The creation of the secondary mortgage market contributed to a boom in housing construction and financing. • The unknown impact of RESPA, Truth In Lending, Mortgage Disclosure Improvement Act, and the SAFE Act will have on mortgage origination.

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