Urban mortgage lending in the late nineteenth century: Detroit and Wayne County, Michigan, 1880-1900

This dissertation examines the mortgage credit market in an American city during the period of rapid urbanization and industrialization preceding the turn of the century. It approaches the market from the perspective of supply, demand and price. It utilizes three primary sources: a sample of 1,048 mortgage contracts recorded at the Wayne County (Michigan) Register of Deeds in 1880 and 1900; abstracts of the mortgaged properties; and the manuscript federal census schedules in which individual borrowers and lenders were located. On the demand side, it is shown that less than one-third of the loans financed the purchase of property. Hence, it is argued that while the market facilitated homeownership in Detroit, it may have served more as a means of allocating loanable funds to users of credit in general, particularly non-commercial borrowers. On the supply side, it is shown that most loans recorded in 1880 were made by individual investors, but by 1900 the market share of financial institutions had risen to nearly one-half; and that this coincided with a rapid expansion of the state's banking system and a sharp decline in rates of interest. Over the same period, local investors made fewer loans while lending on county property by residents of other states rose. In addition, it is argued that local investors sought to reduce risk by lending to borrowers of similar occupational status and/or ethnicity, and by taking mortgages on property located relatively near their homes. Moreover, socioeconomic and demographic characteristics of lenders relative to borrowers were consistent with expectations about differences between savers and dissavers. Finally, the study presents a model in which rates of interest and other terms are determined by preferences of, and constraints upon, diverse borrowers and lenders: i.e. on objective criteria inherently related to loan risk, and on subjective, borrower-specific characteristics. Mortgage loan rates were found to be determined mainly by objective risk factors such as loan amount, term to maturity, the existence of second mortgages, and other indicators of risk.