Debunking a Popular Myth about Mortgage Lending

Did the federal government create modern long-term amortized mortgage products during the Great Depression? Boston Fed economist Paul Willen says that while it's a commonly held assumption, it is not true. In a recent Atlanta Fed Real Estate Research blog, Willen cites findings from a recent research paper, "The New Deal and the Origins of the Modern American Real Estate Loan Contract in the Building and Loan Industry" as evidence that the major change in mortgage products pre- and post-Depression was not from balloon mortgages to amortized products. Instead, Willen notes that research indicates a change in the way amortization was done from a "share-accumulation" contract to a "direct reduction" model.