In order to uncover the mystery of how our parents and grandparents learned that a mortgage was a necessary evil, we must go back in time to the Great Depression.
In 1920's a common clause is loan agreements gave banks the right to demand full repayment of a loan at any time. Since this was like asking for the moon and the stars, no one worried about it ever happening. When the stock market crashed on October 29, 1929 millions of investors lost huge sums of money, much of it on margin.
Back then, you could buy a $10 stock for one dollar. Since the value of the stock dropped, few investors wanted to sell, so they had to go to the bank and take out cash to cover their margin call. It didn't take long for the banks to run out of cash and start calling loans due from good people who were faithfully making their mortgage payments every month.
However, there wasn't any demand to buy these homes, so prices continued to drop. To cover the margin calls, brokers were forced to sell stocks and once again there wasn't a market for stocks so the prices kept dropping. Ultimately, the Great Depression saw the stock market fall more than 75% from it's 1929 highs.
More the half of the nation's banks failed and millions of homeowners, unable to raise the cash they needed to payoff their loans, lost their homes. Out of thei the American Mantra was born: "Always own your home outright, Never carry A Mortgage."
The reasoning behind America's new mantra was really quite simple. If the economy fell to pieces, at least you still had your home and the bank couldn't take it away from you. Maybe you wouldn't be able to put food on the table or pay your bills, but was safe and secure.
Since the Great Depression, laws have been put in place that make it illegal for banks to call your loan due. The bank can no longer say, "we're running a little short on cash and need you to pay off your mortgage loan in the next 30 days."
Additionally, the Fed is now quick to infuse money into the system if there is a sudden run on the banks, as we saw in 1987 and Y2K. Also, the FDIC was created to insure the banks. Still, it's no wonder the fear of losing their home became instilled in the hearts and minds of the American people, and they quickly grew to fear their mortgage.
In the 1950's and 60's families would throw mortgage burning parties to celebrate paying of their home. And so, because of this fear of their mortgage, for nearly 75 years most people have overlooked the tremendous opportunities to use their home equity as a powerful money making asset.
About the Author
Anthony Davis is an active real estate investor and debt expert, who practices what he preaches by offering detailed money-making strategies and easy steps for implementation in his newsletter, "Wealth Without Wall Street" and online, www.powerhouse2000.com
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