A History of the Mortgage
by Greg Rosic  The word “mortgage” is a combination of two French words: “mort” (dead) and “gage” (pledge or wager). The term originated in the 16th century and is attributed to British jurist Sir Edward Coke. Originally, mortgages had two functions. For land owners in financial hardship, mortgages served as a form of collateral on a loan with the understanding that the debt would be paid back once the owner’s finances were put back in order. This is why Sir Coke saw the loan as destined to “die,” either through the transference of property or the repayment of the debt. The second use of the mortgage was to transfer land from one individual to another. In this case, the seller would simply collect the money due to him or her for the property without interest. However, the buyer had virtually no rights, and sellers often abused this system by refusing payment or otherwise preventing the buyer from taking over the use of the land. In the meantime, the seller would continue to profit from both the land and the mortgage payments. In the United States, the mortgage industry began to change thanks to the Great Depression and the ensuing New Deal. In 1932, the Federal government established the Federal Home Loan Bank system, followed by the Federal Housing Administration in 1934. Additional legislation came into effect in the subsequent years, including the U.S. Housing Act of 1937 and the 1944 Veterans Administration loan program. These laws afforded new protections and rights to both buyers and sellers of property. They also created assurances for lending institutions that made it feasible to issue long-term mortgages to middle-class borrowers. A major part of the Federal government’s post-World War II economic program was the construction and sale of housing to veterans, and as such, financial instruments were developed that allowed virtually anyone with decent credit to get a long-term mortgage. In the 1920s, only about 40 percent of Americans had ever had a mortgage. Currently, that number sits closer to 70 percent, showing the success of mortgage industry reform. Opinions are mixed as to whether increased rates of home ownership have been beneficial or detrimental to Americans, but the modern mortgage indisputably played a major role in the economic prosperity of the United States in the 20th century.
