Mortgage Banking in the United States 1870-1940

Title: Mortgage Banking in the United States 1870-1940

Date: 10/29/2013

Author(s): Dr. Kenneth Snowden

Executive Summary:

From 1870 to 1940, the mortgage banking industry in the United States was a dynamic and entrepreneurial sector that took on different shapes and developed a variety of different mechanisms to originate, service and fund mortgage loans. This diversity was driven in part by the variety of functions mortgage bankers performed. They financed agricultural expansion in the Great Plains and real estate development in expanding urban markets throughout the nation, as well as the nationwide shift to ownership of
single-family homes after 1900. Because the farm mortgage banking sector developed first, several innovations originated there and were then adopted or modified by urban mortgage bankers.

Farm and urban mortgage banking also followed broadly similar paths of development. For several decades, privately financed activities and innovations dominated, until sweeping federal interventions transformed the markets in which they operated. For farm mortgage bankers, the public phase began with the passage of the Federal Farm Land Bank Act in 1916; for urban mortgage bankers the turn came with the National Housing Act of 1934 and its FHA mortgage loan insurance program. Both episodes are analyzed here by examining the debates that led to legislative enactment, the regulatory structures that were created and the impacts these had on mortgage banking organization and practice.

The history presented here should be seen as a complement to examinations of the mortgage banking industry during the immediate post-World War II era (Klaman, 1959) and the 1963-1972 period (Kidd, 1973). The three works, taken together, provide an account of nearly a century of mortgage banking progress and activity in the United States. An important generalization that emerges from the combination of the three is that the development of mortgage banking took on an hourglass shape
between 1920 and 1970: it began as a sector diverse in function and technique, became narrowly focused on federally sponsored mortgage products and single funding channels in the immediate post-World War II period, and then transitioned back to a more diverse business model in the mid-1960s. This sequence was driven by the damage wrought by the 1930s mortgage crisis and public interventions that were implemented to ameliorate it.