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

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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

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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

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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

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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%

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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

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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.

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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

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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

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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

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SOURCES OF FUNDS
„ INSTITUTIONAL LENDERS

„ PRIVATE LENDERS

„ GOVERNMENT

21

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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

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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

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

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

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REIT’s

„ REAL ESTATE INVESTMENT TRUSTS

„ EST. 1972 - CHANGES IN INCOME TAX

ACT

27

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MIC’s
„ MORTGAGE INVESTMENT
CORPORATIONS

28

GOVERNMENT AS A SOURCE OF
FUNDS

„ FEDERAL AND PROVINCIAL PROGRAMS

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

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