Back in the 1920's a common clause in loan agreements gave banks the right to demand full repayment of the loan at anytime. When the stock market crashed on October 29, 1929, millions of investors lost huge sums of money, much of it on the margin. As the stocks were dropping, investors weren't intrested in selling so they went to the bank and took out cash to cover their margin call. So sooner than later the banks ran out of cash (understandable) so who did the call on?? Americans faithfully paying 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 than 75% from its 1929 highs. More than half the nation's banks failed and millions of homeowners lost their homes.
Out of this the American Mantra was born. You should always own your home outright. Never carry a mortgage. The reasoning was simple: If the economy fell to pieces, at least you still had your home, and the bank couldn't take it away from you. Since the Great Depression, laws have been introduced that make it illegal for banks to call your loan DUE. Also, now the FED is quick to infuse money into the system if there is a run in the banks as we saw in 1987 and Y2K. Also as your know the FDIC was created to insure banks. So still it is no wonder that people still have it stuck in their mind and hearts that Americans should come to fear their mortgage but a mortgage is one of the best ways to build financial security. So don't fear your mortgage, Embrace it!!!!
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