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Revisiting the history of the 30-year mortgage

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The fate of the 30-year mortgage has been questioned in recent years, but an article in Bloomberg takes a look back at how the product saved the housing market. 

Before the 30-year emerged, banks mostly gave balloon loans with terms of just three to five years. However, after the stock-market crash of 1929, investors stopped buying mortgage bonds, the article says.

In order to get the economy to start flowing again, former president Franklin D. Roosevelt pushed for a national mortgage market.

Mortgage amortization, as such a plan was called, eradicated the need for refinancing, which made the balloon mortgages so precarious. A long period made the mortgages independent of short-term fluctuations in the economy. Borrowers wouldn’t have to weather both unemployment and refinancing at the same time.

Source: Bloomberg
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