History of Mortgage

• 1934: The Indian Reorganization Act established modern tribal governments; decreased federal control of American Indian affairs and increased Indian self-government and responsibility; curtailed future allotment of tribal communal lands to individuals and provided for the return of surplus lands to tribes rather than homesteaders.  
   

• 1934: The Federal Housing Administration (FHA) was formed which regulated interest rates and mortgage loan terms. Amortization of loan payments was established and American home ownership rates rose across all racial demographics. 
   

• Late 1930s: The Home Owner’s Loan Corporation (HOLC) created “Residential Security” maps of major American cities to evaluate the lending risk of neighborhoods for lenders and realtors. High risk neighborhoods were outlined in red, medium in yellow and blue, and low risk in green. Neighborhoods labeled red or high risk were predominantly black neighborhoods; those labeled green or low risk were predominantly white. The practice of denying or limiting financial services in these neighborhoods based on race or ethnicity and not credit worthiness is commonly referred to as “redlining”. Many of the same neighborhoods that were redlined in the 1930s remain lower income neighborhoods today. 
   

• Interactive “Redlining” maps – 1930s grades and current social vulnerability score (Not Even Past: Social Vulnerability and the Legacy of Redlining (richmond.edu) created by the University of Richmond’s Digital Scholarship Lab and the National Community Reinvestment Coalition) 

• Duluth: Not Even Past (richmond.edu) 

• Minneapolis: Not Even Past (richmond.edu) 

• Rochester: Not Even Past (richmond.edu) 

• St. Paul: Not Even Past (richmond.edu) 

​

• 1938: The Federal National Mortgage Association (nicknamed Fannie Mae) was created to increase the amount of money available to borrowers using mortgage securitization: grouping similar FHA-insured loans in order to be sold, bought, and traded together, lowering the risk of default. They also mandated fair and efficient lending guidelines including interest rate, underwriting, and other loan terms and suggested lending practices. Mortgage securitization played a critical role in the 2008 recession but in the 1930s, Fannie Mae was praised for creating capital. 
   

• 1944: The Veterans Administration created a mortgage system of its own as part of the original Servicemen's Readjustment Act known as the GI Bill of Rights. VA loans allowed veterans returning home from World War II to purchase homes at affordable rates without a down payment. The VA insured the loans against default making them beneficial for private lenders and veterans working to catch up with their civilian counterparts. 
   

• 1968: The Fair Housing Act prohibited discrimination in the purchase, sale, rental, or financing of housing (private or public) based on race, skin color, sex, nationality, or religion. Nationally, home ownership rates improved. In Minnesota, white home ownership rates maintained or improved, but black home ownership rates declined. Many factors may have contributed to the declining rates for black Minnesotans, such as the completion of I-94, which cut redlined neighborhoods in half, and the timing of when census data was taken. 
   

• 1968: The Truth in Lending Act protects consumers by requiring disclosures about terms and costs associated with borrowing giving them the opportunity to understand exactly what they are signing up for in the credit and lending markets. 
   

• 1970: The Federal Home Loan Mortgage Corporation (nicknamed Freddie Mac) was created to keep up with increasing housing demands. Freddie Mac operated similarly to Fannie Mae; purchasing mortgages from lenders allowing them to spend on additional mortgages. Freddie Mac offered 30-year fixed-rate mortgages allowing buyers to lock in their interest rate at a time when rates were rapidly rising; eventually raising interest to above 20%. Rates remained high until the late 1990s when they finally fell below 7%. Freddie Mac and Fannie Mae both began purchasing non-FHA and non-VA conventional loans which could be insured by Private Mortgage Insurance companies. 
   

• 1974: The Equal Credit Opportunity Act forbids credit discrimination based on race, color, religion, national origin, sex, marital status, age, or whether you receive income from public assistance programs. This legislation was needed to stop discriminatory practices that continued by the banks after the Fair Housing Act was passed in 1968. 
   

• 1975: The Home Mortgage Disclosure Act requires financial institutions to maintain, report, and publicly disclose loan-level information about mortgages. The data reported shows whether lenders are serving the housing needs of their communities, gives public officials information that helps them make decisions and policies, and sheds light on lending patterns that could be discriminatory. 
   

• 1977: The Community Reinvestment Act requires the Federal Reserve and other federal banking regulators to encourage financial institutions to help meet the credit needs of the communities in which they do business, including low- and moderate-income neighborhoods, with safe and sound banking operations. 
   

• 1982: The Alternative Mortgage Transactions Parity Act overrode many state laws preventing banks from writing certain home loans other than conventional fixed-rate mortgages. The Act inspired new mortgages such as adjustable-rate mortgages (ARMs), option ARMs, interest-only mortgages, and balloon payment mortgages which consumers did not fully understand. Banks underwrote loans based on a borrower’s ability to make the initial low monthly payments without considering the later, higher payments. Buyers often defaulted on their loans and this Act contributed to the mortgage crisis of 2008. 
   

• 1989: The Financial Institutions Reform, Recovery, and Enforcement Act instituted a number of reforms in the savings and loan industry as a result of the savings and loan crisis of the late 1980s. The Act revised the federal government agency structure, rules governing the savings and loan banking system, and the real estate appraisal industry. Major changes include regulations to ensure that real estate appraisals are performed adequately with requirements for full documentation and training of appraisers and their supervisors. It also abolished the Federal Savings and Loan Insurance Corporation and created the Federal Deposit Insurance Corporation (FDIC). 
   

• 1992: The Federal Housing Enterprises Financial Safety and Soundness Act created the Office of Federal Housing Enterprise Oversight to oversee and establish minimum capital standards for both Fannie Mae and Freddie Mac. Unfortunately, the standards were too low and led to the two organizations not being able to cover their losses during times of crisis, which is exactly what happened in 2008. As government funded companies, taxpayers would have to bail out both Fannie Mae and Freddie Mac. 
   

• 1990s: The high interest rates of the 70s, 80s, and early 90s discouraged Americans from buying homes. The U.S. government aimed to increase home ownership to 70% and hoped to achieve this by reducing mortgage requirements and encourage subprime lending. A subprime loan includes a higher interest rate (above prime) than most other loans and is typically made to borrowers who do not qualify for ordinary loans because of bad credit history or another reason. Many subprime borrowers have difficulty maintaining the repayment schedule. 
   

• 1994: The Home Ownership and Equity Protection Act is an amendment to the Truth in Lending Act that requires mortgage lenders to provide borrowers of “high-cost mortgages” with disclosures about how much the loan will cost over its lifetime and the consequences of default. Historically, borrowers with poor credit receive significantly more expensive loans. This Act seeks to ensure that borrowers who take out high-cost loans clearly understand the terms. The law gives the Federal Reserve Board the power to administer the act and adjust the implementation of regulations to diminish predatory lending practices. 
   

• 2007-2008: The subprime mortgage crisis followed a period of astronomically high housing prices coupled with predatory lending and subprime mortgages. In the years leading up to the crisis, high-risk mortgages became available from lenders who funded mortgages by repackaging them into pools that were sold to investors. Lenders lured unqualified homebuyers into purchasing mortgages that they could never hope to afford. The number of first-time homebuyers rose significantly. The increased demand for homes caused home prices to also rise at unprecedented rates. When the housing bubble burst, many homeowners defaulted on their subprime mortgages. Lenders were unable to recoup their losses because home values had dropped far below the amount remaining on mortgages causing some subprime lenders to file for bankruptcy or close. Fannie Mae and Freddie Mac suffered large losses and were placed under government receivership in September, 2008. The bailout cost American taxpayers billions of dollars. 
   

• 2008: The Housing and Economic Recovery Act responded to the subprime mortgage crisis and was an attempt to restore confidence in Fannie Mae and Freddie Mac by strengthening regulations and injecting capital into these two large suppliers of mortgage funding. The Act allowed the FHA to guarantee up to $300 billion in new, 30-year fixed-rate mortgages for subprime borrowers. In order to participate, lenders were required to write down the balances on principal loans up to 90% of their current appraised value. 
   

• 2010: The Dodd-Frank Wall Street Reform and Consumer Protection Act reorganized the financial regulatory system to improve financial stability and consumer protection. The Act targeted sectors of the financial system that were believed to have caused the 2007-2008 financial crisis including banks, mortgage lenders, and credit rating agencies. The Consumer Financial Protection Bureau (CFPB) was established to prevent predatory mortgage lending and make it easier for consumers to understand the terms of a mortgage before agreeing to them.  
   

• 2018: The Economic Growth, Regulatory Relief, and Consumer Protection Act eases regulations imposed by Dodd-Frank by raising the threshold of which banks are deemed too important to the financial system to let fail.