Innovation and the cost of mortgage credit: A historical perspective

Since the inception of U.S. institutional mortgage lending in the 1830s there have been major changes in mortgage instruments, the delivery system, and funding sources. Some of these changes qualify as innovations that have lowered the cost of credit and increased its availability. This article divides the history of U.S. mortgage finance into three periods and identifies the source and type of major innovations. The ''Origins'' period, from 1831 to 1931, included the development of many mortgage lending institutions and instruments. The second era, ''A Wonderful Life,'' featured a government-supported special circuit that dominated mortgage finance from 1932 to 1981 and witnessed development of mortgage-backed securities. The current era, ''A Brave New World,'' features a new system of credit delivery dominated by specialized institutions and technology. In it, application of automated underwriting and artificial intelligence may have far-reaching effects on the market and the accessibility of low-income households to mortgage credit.