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Brief History of The Mortgage: German Law

The document provides a brief history of mortgages, beginning with their origin in German law which introduced the concept of "gage". It then discusses developments in English common law and chancery courts, the emergence of private land ownership, and the doctrine of equitable redemption. The summary traces the evolution of mortgages through periods like the Depression years, post-WWII, and the 1970s, highlighting changes to repayment plans, the emergence of mortgage insurance and backed securities, and current major sources of mortgage funds like chartered banks, credit unions, and government programs.

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63 views

Brief History of The Mortgage: German Law

The document provides a brief history of mortgages, beginning with their origin in German law which introduced the concept of "gage". It then discusses developments in English common law and chancery courts, the emergence of private land ownership, and the doctrine of equitable redemption. The summary traces the evolution of mortgages through periods like the Depression years, post-WWII, and the 1970s, highlighting changes to repayment plans, the emergence of mortgage insurance and backed securities, and current major sources of mortgage funds like chartered banks, credit unions, and government programs.

Uploaded by

Freelansir
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as PDF, TXT or read online on Scribd
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BRIEF HISTORY OF THE

MORTGAGE

„ LESSON 2

Instructor: Larry Wosk

GERMAN LAW

„ ORIGINATED THE CONCEPT OF “GAGE”

ENGLISH DEVELOPMENTS –
Middle Ages

„ PRIVATE OWNERSHIP OF LAND


EMERGES

1
LAND SALE WITH
MORTGAGE TAKEBACK
WHEN LAND WAS SOLD WITH A
MORTGAGE TAKEBACK, THE SELLER
KEPT OWNERSHIP AND POSSESSION OF
THE LAND UNTIL THE MORTGAGE WAS
TOTALLY REPAID

TREATMENT BY COURTS

„ COMMON LAW COURTS

TREATMENT BY COURTS

„ CHANCERY COURTS – COURTS OF


EQUITY

2
DOCTRINE OF “EQUITABLE
RIGHT OF REDEMPTION”
„ BASIC UNFAIRNESS IF BORROWER IS IN
“MINOR” DEFAULT OF THE TERMS AND
THE LENDER SIEZES THE PROPERTY

1900-1920’S
„ MORTGAGE EVOLUTION FOCUSSED ON
REPAYMENT PLANS AND RISK
PROTECTION RATHER THAN THE
EVOLUTION OF LEGAL RIGHTS

DEPRESSION YEARS
ECONOMIC COLLAPSE!
„ BORROWERS UNABLE TO SAVE FOR THE
EVENTUAL MATURITY OF THEIR
MORTGAGE OR MAKE INTEREST
PAYMENTS

3
CHANGE IN REPAYMENT PLANS

„ RESPONSE BY INDUSTRY WAS A MOVE


TO REPAYMENT PLANS WHERE
PERIODIC PAYMENT OF BOTH INTEREST
AND PRINCIPAL OCCURRED

10

POST WW II 1945-1968
NATIONAL HOUSING ACT (NHA) CREATED
CANADIAN MORTGAGE AND HOUSING
CORP. (CMHC)
„ GOVERNMENT MORTGAGE DEFAULT
INSURANCE WAS CREATED TO
STIMULATE THE DEMAND FOR, AND
SUPPLY OF HOUSING

11

MORTGAGE LOAN INSURANCE


(MORTGAGE DEFAULT INSURANCE)
„ LENDERS OFTEN REQUIRE MORTGAGE
INSURANCE FOR RESIDENTIAL LOANS
WHERE THE DOWN PAYMENT IS LESS
THAN 20%

„ BASED ON LOAN-TO-VALUE RATIO

12

4
MORTGAGE INSURANCE
FEES
„ FEES (09.07) ARE BASED ON LTV
RATIO AND RANGE FROM

„ 0.50% UP TO 65.00%

„ 1.00% FROM 75.00-80.00%

„ 1.75% FROM 80.01-85.00%

„ 2.00% FROM 85.01– 90.00%

„ 3.10% FROM 95.01 – 100%


13

WHEN A BORROWER DEFAULTS


„ IF THE BORROWER DEFAULTS ON AN
INSURED LOAN, THE LENDER WILL:

Foreclose and sell property (with court


approval) and if deficient

14

CONVENTIONAL MORTGAGE
„ AN UN-INUSRED MORTGAGE LOAN.
„ THE LENDER HAS ONLY THE PERSONAL
COVENANT OF THE BORROWER AND
THE VALUE OF THE PROPERTY AS
SECURITY.

15

5
1970’S -
PERIOD OF RAPIDLY INCREASING
INFLATION AND RISING CONSUMER
DEMAND
„ INTENSIFIED COMPETITION BETWEEN
INVESTMENT AND CONSUMPTION
DEMANDS FOR MONEY SUPPLY
„ INTEREST RATES ROSE SIGNIFICANTLY
DURING THE LATE 70’S AND EARLY ’80’S

16

EMERGENCE OF THE PARTIALLY


AMORTIZED MORTGAGE
„ AMORTIZATION PERIOD REMAINED LONG
(25 YEARS NORMALLY) BUT

„ TERM WAS SHORTENED FROM 25 YEARS


TO 1-5 YEARS

17

CANADA INTEREST ACT –


PREPAYMENT RIGHTS
„ PERMITS PREPAYMENT BY AN
INDIVIDUAL BORROWER OF A LOAN
SECURED BY A MORTGAGE AFTER THE
FIFTH ANNIVERSARY OF A MORTGAGE
AND LIMITS THE PREPAYMENT PENALTY
TO A MAXIMUM THREE (3) MONTHS
INTEREST

18

6
NHA MORTGAGE BACKED
SECURITIES (MBS)

„ CREATED IN 1986 BY CANADA


MORTGAGE AND HOUSING
CORPORATION (CMHC)

19

MBS AS AN INVESTMENT
VEHICLE
„ THEY CAN BE TRADED IN THE MARKET

„ THEY HAVE TWO GUARANTEES

20

SOURCES OF FUNDS
„ INSTITUTIONAL LENDERS

„ PRIVATE LENDERS

„ GOVERNMENT

21

7
CHARTERED BANKS
„ LARGEST RESIDENTIAL MORTGAGE
LENDER TODAY
„ MAXIMUM LOAN TO VALUE RATIO: 0.75
UNLESS INSURED BY NHA OR PRIVATE
INSURER
„ MAXIMUM 10% OF TOTAL ASSETS IN
CONVENTIONAL MORTGAGES
(EXCLUDING NHA)

22

CREDIT UNIONS & CAISSES


POPULAIRES
„ SECOND LARGEST RESIDENTIAL
MORTGAGE LENDER

23

TRUST AND LOAN COMPANIES

„ OFFER SIMILAR SERVICES TO BANKS


BUT ALSO ADMINISTER ESTATES,
TRUSTS, PENSION PLANS AND AGENCY
CONTRACTS WHICH BANKS ARE NOT
PERMITTED TO UNDERTAKE DIRECTLY

24

8
LIFE INSURANCE COMPANIES
„ ONCE THE MOST IMPORTANT SOURCE
OF MORTGAGE MONEY IN CANADA
„ IN 2004 THEY HELD 2.7% OF
RESIDENTIAL MORTGAGE CREDIT

25

PRIVATE LENDERS
„ PRIVATE INDIVIDUAL LENDERS
„ VENDORS OF PROPERTY
„ INVESTMENT GROUPS THAT POOL THEIR
FUNDS

26

REIT’s

„ REAL ESTATE INVESTMENT TRUSTS

„ EST. 1972 - CHANGES IN INCOME TAX


ACT

27

9
MIC’s
„ MORTGAGE INVESTMENT
CORPORATIONS

28

GOVERNMENT AS A SOURCE OF
FUNDS

„ FEDERAL AND PROVINCIAL PROGRAMS

29

SOURCES:
„ Baxter, D., Hamilton,S.W., & Ulinder, D.D. Real Estate Finance
in a Canadian Context (1998) UBC Real Estate Division

30

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