معامله جدید و منشاء قرارداد وامی دارایی واقعی در آمریکای مدرن

The fully amortized mortgage loan contract is an important instance of financial innovation in the U.S. residential mortgage market. We examine the adoption of this contract from the 1880s to the 1930s by building and loan (B&L) associations, the nation’s most important institutional home mortgage lenders at the time. A chain of complementary innovations by B&Ls gradually reduced the costs of adopting amortization, supporting moderate use by the 1920s. During the crisis of the 1930s, the poor performance of the traditional B&L loan contract radically increased the benefit of adoption, as borrowers demanded the new contract. The adoption examined here occurred primarily in the conventional loan market because B&Ls, unlike other lenders, generally avoided the use of the new Federal Housing Administration insurance program. The New Deal may have had more impact through new federal savings and loan charters, which incorporated many of the complementary innovations that supported the new form of lending.

The mortgage crisis in the United States that began in 2007 is worse than any since the 1930s. In both instances, the poor performance of some residential mortgage contracts contributed to the severity of the crises and led to fundamental re-examination of contractual structures. During the 1930s, residential real estate lenders rapidly increased their use of amortization through the direct reduction contract (i.e. with the familiar modern method of amortization in which monthly payments directly reduce outstanding debt). Popular accounts typically describe this transition as a move away from short-term, interest-only, balloon loans prior to the Great Depression.1 These accounts also usually attribute the adoption to the influence of two New Deal programs that used the direct reduction contract: loan insurance through the Federal Housing Administration (FHA), and refinancing through the Home Owners Loan Corporation (HOLC). Such accounts capture part of the history but miss much more. As early as the 1880s, members of the building and loan (B&L) industry – historically the largest institutional source of nonfarm mortgage lending – were the first to use the direct reduction contract in the nonfarm field.2 Until the 1930s, though, most B&Ls continued to use an older “share accumulation” contract, which provided a gradual repayment mechanism through the purchase of equity shares, but did not provide amortization. From the 1880s to the 1930s, a small but growing part of the B&L industry switched to direct reduction contracts, and then the pace of adoption greatly accelerated during the 1930s. We use a simple benefit–cost framework to explain both the pre- and post-1930 adoption patterns. The benefit of adopting the direct reduction contract came from the ability to obtain or retain the business of borrowers who demanded the new contract. Such demands were not widespread until the mortgage crisis of the 1930s when borrowers became more fully aware of, and subject to, the significant risk they bore under the share accumulation contract. The costs of adoption involved extensive changes in the financial structure of B&Ls to accommodate the new contract. These costs had decreased gradually between 1880 and 1930 as some B&Ls experimented with amortization. A theme from this history is that the adoption of a mortgage loan contract was not an isolated choice but rather one that was embedded in the financial structure of individual lenders and the institutions of the mortgage market. We place the innovation of the direct reduction contract in the context of a broader set of B&L financial and organizational practices, in the spirit of a “systems” approach to innovation such as that described by Rosenberg (1982) in nonfinancial contexts. This perspective helps clarify that New Deal policy contributed to the rise of the modern loan contract by embedding it in the appropriate financial structure of the new federally-chartered savings and loan system. Besides the adoption of amortization, other changes in mortgage contracts took place during the 1930s, including the use of longer terms and higher leverage. We suggest that amortization was the key development, though, as it reduced the risk associated with longer terms and higher leverage, and its absence had become the key constraint on loan contract design in the early twentieth century.3 Many readers will also identify the modern American loan contract with the use of fixed rates over long periods of time. However, innovations to deal with interest rate risk have largely been confined to the post-World War II era as concerns over that risk were not prominent during the historical period considered in this paper.

In this paper we have used a simple cost–benefit framework to explain the adoption of fully amortized loan contracts by B&Ls, including the period of slow adoption from 1880 to 1930, and the period of fast adoption after 1930. Our approach contrasts with popular explanations which have focused solely on the fast adoption in the 1930s. Those explanations, by dating the invention of the contract to the 1930s, explain the fast adoption by assuming lenders immediately adopted the new contract because of its superiority or because of an FHA subsidy. In contrast, our cost–benefit framework implies little about the general efficiency of the direct reduction contract relative to other contracts, and instead emphasizes the large demand for an alternative to traditional contracts. Our explanation also does not necessarily give an important role for FHA insurance, particularly since B&L participation in the FHA was limited. Rather, B&Ls sought other ways to absorb the increased credit risk of the new contract. More generally, the direct reduction contract was part of a broader system of innovations, as B&Ls adapted their financial and organizational structures to accommodate the new form of lending.