The History of Home Loans

Home loans are usually the largest loans that consumers will ever make. Because of this, it is important to know how home loans started, the different types of home loans and the similarities and differences between them. In this way, consumers can make the best decision on which loan is the best for their purposes.

History: Fannie Mae and Freddie Mac

For many years, the only way in which to obtain money to purchase a home was to apply for a conventional home loan. This type of loan was obtained through a bank, credit union or other private, non-government-affiliated financial institution. In 1938, the Federal National Mortgage Association, better known as “Fannie Mae,” was created and established as a federal agency by then-President Franklin Roosevelt as part of his New Deal. It made it possible, even during a time when most people were out of work and had little, if any, income to still be able to afford a home.
In 1970, the Federal Home Loan Mortgage Corporation, known as “Freddie Mac,” was created to lessen the “monopolization” of home lending that it was felt that Fannie Mae enjoyed. Both Fannie Mae and Freddie Mac were at one time considered “government” auspices, but now are considered private establishments.

History: Help for Veterans

World War II came along, and hundreds of citizens went to war. When it ended, they returned home to pick up their lives where they had left off, or to start a life.
These people needed places to live, so the Serviceman’s Readjustment Act of 1944, Public Law 78-346, was enacted. This made it possible for veterans borrow money for the purchase or building of a home. Several major changes in the Act have been made in the years since 1944, allowing veterans of subsequent wars, such as Korea, Vietnam and, most recently, the Gulf wars, to have the same advantages in obtaining home loans.

Effects

All home loans—conventional, VA, Fannie Mae, and Freddie Mac--accomplished the same goal: they allowed people to become homeowners. The Veteran’s Administration, Fannie Mae and Freddie Mac, however, provided a level of protection for the loans and those involved with them that other financial institutions might not necessarily have. Part of this had to do with their governmental ties (at least until Fannie Mae and Freddie Mac became private entities), as well as their overall strength as lending agencies.

Benefits

Having different types of home loans to choose from allow more people to be able to own their own home. Depending on the terms and conditions, it may be easier to obtain a loan from one entity than from another; however, the same goal is attained: home ownership.

Potential

As long as there are financial institutions that will make home loans, there will be the opportunity for people to own a home. There will probably be changes, especially in such areas as interest rates, simply because the housing market changes at different times, depending on the national economy.