Mortgage
From Encyclopædia
A mortgage is the pledging of
property by a borrower to a lender as security for the payment of a debt. A familiar example is the home mortgage: the mortgagor (buyer) gives a mortgage on the house being bought to the mortgagee (a bank, savings and loan association, or other institution that deals in mortgage loans), which provides
money for the transaction. The buyer agrees to repay the principal amount of the loan and
interest in a specified period of time, usually 20 to 30 years. In most states a mortgage gives the mortgagee a
lien--as opposed to the common-law practice of granting condition title--on the house or
property as security for the loan. If the borrower fails to make payments on the loan and
interest due, the lender may begin foreclosure proceedings, through which the
property is sold in order to satisfy the claim of the leader.A person with no real estate may borrow by giving a bank or loan company a chattel mortgage on personal
property, such as a car, as security for a loan. Corporations often borrow by issuing mortgage bonds, which are secured by mortgages on their business
property. In the
United States,
interest-rate ceilings for mortgages, as for other forms of credit, vary from state to state.During and after
world War II the U. S. government entered the mortgage market to make it easier for home buyers to obtain mortgages. The [[Federal
housing Administration|Federal
housing Administration]] (FHA), an agency of the Department of
housing and Urban Development (HUD), insures mortgages by private lenders, and the Department of Veterans Affairs (formerly the Veterans Administration, or VA), guarantees part of the loans made to veterans. The
Federal National Mortgage Association ("Fannie Mae") is a privately-owned corporation established to buy and sell FHA-insured and VA-guaranteed mortgages.In the late 1970s and early 1980s increased demand for
housing combined with high
interest rates in the
United States resulted in "creative financing," particularly floating-rate mortgages, to supplement the traditional home mortgage. Continued tight
money thereafter compelled the government to seek new means of assuring mortgage credit. The Government National Mortgage Association ("Ginnie Mae"), an agency of HUD, establishes secondary markets for residential mortgages, and the Federal Home Loan Mortgage Corporation ("Freddie Mae"), like Fannie Mae, a quasi-private corporation, serves as a vehicle for channeling funds from the securities markets into the mortgage market through mortgage-backed securities programs. All three mortgage agencies help to increase the supply of credit available for
housing.The owner of a mortgaged house who wants to obtain another loan sometimes applies for another mortgage, which is called a second mortgage because it is second in priority to the first mortgage. The
interest charged on a second mortgage is higher than that on a first mortgage. In
case of foreclosure, the holder of the second mortgage can recover only after the first mortgage holder has been paid.
bibliography: DeBat, Don, and Kelly, Thomas A., The Mortgage Manual, rev. ed. (1989);
Downs, Anthony, The
revolution in Real Estate Finance (1985); Flynn, Deborah, Introduction to Real Estate Law, 2d ed. (1986); Sloan, Irving J., The Home Mortgage Law Primer (1988).
