Covered Farm Mortgage Bonds in the Late Nineteenth Century U.S

Abstract

Covered mortgage bonds have been used successfully in Europe for two centuries, but failed in the U.S. when introduced as farm mortgage debentures in the 1880s. Using firm-level data and a sample of loans made by one Kansas mortgage company, I find that debenture programs grew out of established loan brokerage operations and were used to fund mortgages that were difficult to broker because of size, term or risk characteristics. Debentures broadened access to the interregional mortgage market and facilitated an expansion of western farm mortgage debt before the innovation failed in the mortgage crisis of the 1890s.