Prior to the U.S. government’s entrance into the home loan business in the 1930’s – this coming as a result of FDR’s New Deal – savings and loan associations had, up until that point, provided the majority of the loans which were used to finance the acquisition of homes.

The Homeowners Refinancing Act and the Home Owners Loan Corporation Act were each passed in 1933…just as the Great Depression was devastating the finances of Americans. These two housing Acts? Extensions by the U.S. government into the private sector. One byproduct of FDR’s New Deal.

The Home Refinancing Act and the Home Owners Loan Corporation Act provided assistance to Americans who were in danger of losing their homes. Due to an inability to refinance their home loans. Thanks to the New Deal, Americans gained access to new refinancing opportunities. Which, should there have been no New Deal, would not have been in place. The government’s election to get more deeply involved in the home loan business during the Great Depression was a wise foray by the U.S. government into the private sector.

Rewind to 300 years before the New Deal. Rewind to the earliest days of settlers moving west into new territories of what would in time become the United States.

Whereas FDR’s New Deal took aim at stabilizing a teetering U.S. housing market during the Great Depression, for early settlers, there wasn’t a need for government assistance in regard to real estate. There were no government programs in place to assist early settlers. There was no U.S. government to provide such government assistance.

During the 17th Century, there were no American institutional resources – nor government programs – which could facilitate real estate transactions. Was there interest during the 17th Century in acquiring land? Yes. Was there a banking industry? Was there a mortgage industry? Were there government programs in place which could be relied upon to help finance real estate transactions? No. No. And…no.

During the 17th Century, land acquired by settlers who moved west…those land acquisitions would not be categorized as real estate sales. Nor was acquired land financed through the use of mortgages. No, in the 17th Century, those who aspired to own their own land in this vast, new territory ventured out west. They found a piece of land. They claimed the land. Land ownership without a deed. Without a mortgage. Without government oversight.

At that time, there was not a lot of “demand” for this land. Though the natives who long inhabited this land, pre-settlement, would beg to differ. There was no formal market established, through which land could be bought and sold. Nobody was entering into real estate contracts when they acquired their land. No sellers, as we would categorize sellers today. No buyers, as we would categorize buyers today.

Land acquisition – by way of financing the land acquired – was not the practice. Claiming unsettled land was the practice. No real estate contracts. No mortgages. No deeds. Interesting how, 300 years later, the U.S. government’s role in the home loan business would become so pronounced. So important. Interesting how the U.S. government evolved into a stakeholder in the business of financing real estate. This role for government occurred, largely, through FDR’s New Deal.

Government’s intervention in the home loan business? That was during the 1930’s. Government’s complete absence from the process of acquiring land? That would have been during the aforementioned 17th Century. How about vehicles used to finance the purchase of real estate, relevant to protections found within FDR’s New Deal? That would be banks.

Six years after Henry Duncan established the first savings bank in England in 1810, the first saving bank was organized in the United States. In Philadelphia. That bank was the Philadelphia Saving Fund Society – the very first American savings bank.

Philadelphia Saving Fund Society opened in Philadelphia in 1816…established by a group of investors headed by War of 1812 veteran – and Philadelphia native – Condy Raquet.

Bank takeovers, bank mergers, bank acquisitions… What once had been the Philadelphia Saving Fund Society is now part of Citizens Bank of Pennsylvania.

Whereas Philadelphia is home to the first American savings bank, Philadelphia is also home to the first commercial bank established in the United States.

Thirty-four years prior to the establishment of America’s first savings bank – Philadelphia Saving Fund Society, formed in 1816 – we have the first United States commercial bank. Also founded in Philadelphia. That year would be 1781. The bank? That bank was Bank of North America.

Bank of North America was the first chartered bank – the first commercial bank – organized in the United States. Bank of North America…the formation for which emanated from an idea shared by two early American forefathers. Those two forefathers? Alexander Hamilton and Henry Morris.

Hamilton and Morris set up their bank to function as an informal American central bank. Their idea for the bank being, to provide financing to the United States government. Though constructed with the goal for their bank to operate as a de-facto, unofficial United States central bank, Bank of North America instead became a traditional state chartered bank. Not the central bank it was envisioned to become. Bank of North America was never the government financing tool Hamilton and Morris envisioned the bank to be. Rather, Bank of North America provided home loans to Philadelphians.

Bank takeovers, bank mergers, bank acquisitions… Bank of North America is now part of Wells Fargo.

During the 1800’s, loans used by Americans to finance real estate were not mirror images of the loans Americans use to finance homes in 2024.

During the 19th Century, home loan payment schedules were much shorter. No 30-year amortization. No 15-year amortization. Rather, in the 19th Century, you’d likely have either a 5-year or a 6-year loan payment schedule. No 15-year amortization. No 30-year amortization.

During the 19th Century, balloon mortgages were common. With a 5-year mortgage or a 6-year mortgage, qualifying for the home loan was difficult. And, in many cases, those 5-year or 6-year mortgages were balloon mortgages.

19th Century balloon mortgages were often structured with interest-only payments. After the mortgagor made their payments for the five or six years, the loan would then “balloon.” Whereby, the mortgagor would at that time be required to pay off their loan in full.

Coupled to interest-only payments – with the balloon provision – 19th Century mortgages would oftentimes be accompanied by low loan-to-values. In the range of a 50% loan-to-value. With interest-only payments made for 5 or 6 years, loan payoffs for mortgagors after the 5 or 6 years would have remained at payoff amounts equal to 50% of the purchase price of the property. Not taking into account any potential property appreciation. No New Deal. No government assistance available. Difficult to pay off and/or refinance home loans at that time…

In the midst of the Great Depression, upwards of 40% of all home mortgages in the United States were in default. Hence, FDR’s New Deal…

No government regulation for those early land acquisitions out west. No government regulation when those home loans were interest-only, coupled to balloon provisions. Rationale behind some form of a “new deal”…maybe?

Through the FHA, longer loan terms became available. 20-year mortgages. 30-year mortgages. Amortized. Unlike earlier interest-only mortgages, through FDR’s government reach into the real estate sector, mortgagors would be paying down their home loan principal balances. Through each and every payment they made.

The 1934 National Housing Act was signed into law by President Franklin Delano Roosevelt on June 27, 1934. The 1934 National Housing Act fundamentally changed government’s role in housing.

The United States Housing Act of 1937 – the Wagner-Steagall Housing Act – established the Federal Housing Administration (the FHA). The FHA was created to handle mortgage insurance. Mortgage insurance allowed for amortized mortgages…coupled to regular monthly payments.