One of the major signs that you are now an adult is when you take on your first mortgage. So much about the concept and process is terrifying, but for many people it’s the only way they could afford a house. And let’s face it, shelter is important.
But how much do you actually know about the mortgage and its relationship to the housing market?
Although the two concepts are pretty much intertwined now, this is a relatively new phenomenon. We’ve been building shelter for over 30, 000 years. Mortgages are still a baby in comparison. If you are looking to take on a mortgage maybe you should know a bit about how it got to your financial institution and the housing market.
Come with me this week as I go on a journey across the lifespan of the mortgage.
Believe it or not, the 1930s was when financial institutions introduced what we now know as the mortgage. Potentially started as a way for insurance companies to branch out their offerings or maybe a way to gain the financial benefits that would come from defaulting customers, it wasn’t until 1934 that the Federal Housing Administration developed the basis for what we now know as a mortgage. Their mortgage design forced competing financial institutions to fall in line, really opening up the real estate market for the first time.
The next notable change came with the introduction of different mortgage types. See, at first borrowers were tied to fixed-rate mortgages. Then, as inflation rates in the 1970s made fixed rate mortgages less appealing, adjustable rate mortgages came into play. Now customers had access to larger loans with rates that changed with the fluctuations in the market.
The 1980s saw a housing crisis caused by record-high interest rates. The financial institutions holding the loans were not forgiving and the country weathered a recession. This recession would result in the failure of thousands of banks and mass repossessions. It would also see the creation of the Resolution Trust Corporation.
The RTC brought in equity partnerships, allowing multiple parties access to the real estate deal. This, of course, came attached with the issues that come about when you involve multiple parties. Was it a good thing? Depends on who you ask.
The next mortgage stage of note of course was the mortgage crisis and the great recession of 2008. Caused (mainly) by the subprime mortgage crisis and the actions of big banks, the downturn led to increased distrust and disdain towards big banks and the desire for a modern alternative.
Enter the FinTech mortgage. This revolution is probably the biggest change to the mortgage market since the 1930s, disrupting almost everything people think about the process and bringing in a mortgage that will better serve the modern homeowner and consumer. Technology will continue to impact and improve the mortgage industry, changing how we buy the necessary element that is shelter. Big data is set to bring in the next big shift in mortgages and we may not have the ability to guess the step that comes after that, as it will involve technology we haven’t been exposed to yet.
Regardless, this new mortgage system—just like the past iterations— will help countless people finally get a place to call home. It will help you get a home (if it hasn’t already).
During our time on this planet we’ve come up with some great things. I think a mortgage is right up there on the list of most helpful inventions. Do you agree?