How does Mortgage Banking Help Homeowners and the Economy?
1st Security Bank
Finance is the backbone of our modern world. Commerce is viable because banks, savings and loans, credit bureaus, stock markets and other financial institutions supply the capital formation framework necessary for businesses to operate in a capitalistic system.
As far back as 5,000 years ago, Sumerian and Babylonian priests were receiving deposits and making loans. The fall of the Roman Empire saw the virtual disappearance of banking as trading declined, but financial dealings thrived in the Arabic countries and in China, where paper money and even checks were being used. It was not until the 11th century that banking on an organized scale was a reality in Europe, after again being re-introduced from the Middle East counties and China.
By the 10th century, monasteries and religious orders had accumulated vast wealth and were making loans at very high interest rates. However, these violated the church’s rules against usury. This was a golden opportunity for the Jewish community, which was not bound by the Church’s ban on interest bearing loans. By the 12th century the Jewish community was well established as the leading money changers and lenders, but by the middle of the 13th century, Italians from Lombardy had taken the lead, having gotten around the Church’s ban on interest bearing loans that in turn helped them in becoming the Church’s official bankers in 1233. The major players were mostly families, of which the Bardi, Peruzzi, Acciaiuoli, and the Medici stand out, (Did you know Bank of America was founded by Amadeo Giannini in San Francisco and was originally called Bank of Italy?) but the Fugger family from Germany was probably the most successful. Ironically, many early banks failed due to uncollectible loans to kings and noblemen who had grandiose schemes but no systematic financing apparatus to repay the loans.
Banking as we know it finally arrived in the 17th century, after some very important innovations and changes:
- Public banks of issue,
- Stock exchanges,
- Systematic government taxation, and
- The modern merchant banker who discounted bills and dealt in government securities
Following a very successful Dutch banking system model, the Bank of England was created in 1694 making credit available at low interest rates. Modern banking was finally a reality that spread quickly across Europe.
In the U.S., the Bank of North America in Philadelphia was chartered by the Continental Congress in 1781, primarily to finance the Revolutionary War, and in 1791 Congress, at the urging of Alexander Hamilton, chartered the First Bank of the United States, with Hamilton as the First Secretary of the Treasury. Andrew Mellon was Secretary of Treasury under Presidents Harding, Coolidge and Hoover.
Today there are many and varied institutions that work together to provide financial reserves for the nation’s commerce. Obtaining favorable rates and terms for financing our homes and buildings, which is probably the largest investment of our lives, is the realm of the mortgage banker.