A mortgage loan, also known as a property-backed loan, is a financing instrument secured by specific assets. Borrowers pledge real or movable property, such as real estate and land, to financial institutions to obtain funds. If repayments are not made on time, the lender may legally dispose of the collateral. Key elements of this type of loan include the value of collateral covering the loan amount, the interest rate calculation method (fixed or floating), and legal contractual constraints. The typical process includes application appraisal, contract signing, mortgage registration, and loan disbursement.
The origins of mortgage loans can be traced back to the Babylonian Empire in the 18th century BC, with references to them in the Code of Hammurabi. The modern system took shape in 14th-century England, initially characterized by conditional transfers of ownership, with default resulting in the forfeiture of the collateral. China introduced market-based mortgage loan mechanisms following housing reforms in the 1990s, furthering the financialization of real estate.
The key characteristics of mortgage loans are risk, real estate security, and the nature of the mortgage backed by property. The collateral in a mortgage loan primarily includes buildings and other land fixtures, the right to use construction land, vehicles, and other property not prohibited by law. Land ownership, farmland, residential land, public welfare institutions, and public facilities are not permitted as collateral. When a mortgage loan contract is established, both the creditor and the debtor acquire corresponding rights and obligations. The creditor is obligated to provide the debtor with the loan in full and on time, as agreed in the loan agreement. The debtor is also obligated to repay the debt promptly and in full. The mortgagee has the right to preserve and dispose of the collateral, enjoys priority in payment, and is also obligated not to hinder the mortgagor's disposal of the collateral. The mortgagor has the right to possess, use, benefit from, and dispose of the collateral, but is also obligated not to damage the collateral.
American Mortgages
American mortgages refer to the mortgage securitization model that originated in the United States. As one of the most significant financial innovations of the 20th century, it began with the establishment of the government-owned Mortgage Securities Corporation in 1938 to promote economic recovery after the Great Depression. This model established primary market guarantors such as the Federal Housing Administration (FHA), as well as secondary market institutions such as Ginnie Mae, Fannie Mae, and Freddie Mac. Initially, operations were limited to wholesale mortgage transactions: when interest rates were high and funds were scarce, institutions purchased mortgages to inject capital. When interest rates fell, they sold mortgages at a profit to repay debt. Ultimately, the first mortgage-backed securities were launched in 1970.
The US government secured AAA ratings for mortgage-backed securities through credit guarantees, creating a market structure in which government agencies, quasi-governmental agencies, and private companies coexisted. By 2000, outstanding US residential mortgages reached $5.7219 trillion, with over 50% securitized, making mortgage-backed securities the largest type of bond in the US. This model differs significantly from the German Penderbrev mortgage bond in its operating mechanism.
Western European Mortgage Insurance Mechanism
The Western European mortgage insurance mechanism is a mortgage risk-sharing model that combines life insurance and property insurance, primarily implemented in Western European countries such as the UK and Germany. This mechanism requires borrowers to purchase life insurance when applying for a housing loan. The policy must match the insured amount and the term of the loan, and the lending bank must be the policyholder and beneficiary. If the borrower becomes unable to repay due to death or disability, the insurance company will pay the insurance proceeds, which the borrower or their family can use to pay off the remaining loan balance, thus protecting the borrower's ownership of the property.
Although the law does not mandate the purchase of homeownership insurance, borrowers generally proactively purchase mortgage property insurance due to the high cost of purchasing a home and the unacceptable risk of natural disasters. This dual insurance model, through the dual channels of bank risk transfer and borrower protection, forms a unique Western European financial security system, distinct from the US single-insurance model.