Mortgage finance and construction in the American economy since the end of the war

Abstract

The article is devoted to the examination of the radical changes which have taken place during the last twenty years in the American system of mortgage finance, of the importance of the new system as a factor helping to induce the building boom, of its implications for monetary policy, and of its significance on the social plane. It is well-known that the repercussions of the great depression were aggravated by the inherent "instability" of the structure of American mortgage debt. But it was out of the depths of the depression that was born that long-range legislation which, going beyond the bounds of a simple "rescue operation" developed a series of entirely new institutions. In short, the joint effect of the new institutions was to promote far-reaching changes in mortgage credit. With the sharp reduction in the risk of illiquidity and loss, mortgage credit came to form a larger part of the normal activities not merely of Life Insurance Companies but even of commercial banks. The changed character and organisation of the market meant that the door to building finance was opened even to the lower-income groups, since the reduction in interest rates, the higher loan-to-value ratios, and the lengthening of the period of repayment, combined as the author says, "to bring the monthly charge of buying a house well below the monthly rental". Finally, the author stresses the point that the various forms of government intervention, and the activities of the new Federal institutions, besides broadening the dimensions of the mortgage market, have helped link it up more closely with other compartments of the money and capital market.

JEL: G21, E51, E52