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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

Residential Mortgage Lending:Principles and Practices, 6e

Chapter 1

History of Mortgage Lending


  • 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.


  • 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.


  • 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.


  • 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.

Landmark federal legislation
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)

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)


  • Need for Additional Funds for Housing

  • The Role of Subprime Lending

  • Evolving Mortgage Lending Issues in the New Century

What do you think
What Do You Think? MARKET

  • 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?

What do you think1
What Do You Think? MARKET

  • 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?

What do you think2
What Do You Think? MARKET

  • 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?

Check your understanding
Check Your Understanding MARKET

  • 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.

Check your understanding1
Check Your Understanding MARKET

  • 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.

Check your understanding2
Check Your Understanding MARKET

  • 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.