Though examining the past may seem pointless for many people, truth is that knowing the past can help us understand the present and foresee the future. That is what history is all about.
And this is a brief history of home mortgage loans in America where we do not pretend to depict the exact steps that this financial product went through all along the history of finances but the few main high spots that turned these loans into what we see today.

Before Federal Lending Institutions Appeared

At the beginning, there where not institutionalized lenders providing home mortgage or promoting the issuing of mortgage loans by private parties as there are today. Instead there where only private lenders that personally lent the money to those who needed it but the terms of the financial transaction were not fair, at least not on today's perspective. Moreover, many of the practices that where very common those days, would be considered predatory lending today.

For instance, what today is a special loan type targeted to very specific borrowers with special needs, back then was the rule: the balloon payment. At the end of the repayment program (and repayment schedules would not last 30 years, not even 15!), the borrower had to put down a significant amount of money which was a big part of the loan principal. Therefore, though there where installment loans back then, these where not small installments and particularly the last one was not small at all.

Local Networks or Professional Groups

Certain professional groups started to pull together and join efforts to finance themselves. This is also the beginning of mutual funds which provided financing for businesses. However, they also provided financing for home purchases as well as the purchase of other types of properties. The problem was that these where closed groups and thus, the funds where not available for the public but only to a reduced party.

However, soon these separate groups started to group together and started lending outside the factions. Local and even state networks where funded and these lenders did provide financing for the public. Still, the requirements for approval on home mortgage loans where rather harsh.

Insurance Companies, Savings And Loan Associations

The next step on the road was the formal lending of mortgage loans that started with certain insurance companies that wanted to invest the money they obtained from premiums. Later on, savings and loan associations appeared with a new concept. These associations provided a place for people to save money for a home purchase and also to obtain a loan for the same purpose.

Government Funding and Subsidizing

Finally, when the government created the Federal Home Loan Bank, a big step was made. The mortgage loan with affordable monthly installments as we know it today appeared and replaced the less advantageous terms explained of balloon loans. The government thus, subsidized private financial institutions so they could provide funding with better terms and the access to home ownership increased.

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