Prior to the Great Depression Mortgages were for only one year at a time, at the end of the year you had to enter into a new Mortgage (Thus a lot of the Westerns of the 1930s use this as a plot device). What happen in the early 1930s (actually starting in 1927 in rural areas, the Depression started early in the Rural Areas) was the various small banks who held the loans had huge calls for cash much like today's cash crisis but this increased by the lack of any federal deposit insurance so runs on the banks were also a factor. These runs were based on the fact that without any type pf Deposit insurance people believe they would their deposits if the bank went under do to the overall cash crisis. This overall shortage of cash forced the banks, when mortgages came due, to demand payment in full for the banks needed the cash. If the farmer was unable to come up with the cash the bank would then foreclose on the home and farms of people (In fact one of the problem of the Great Depression was the people would work out payments with their banker but then have the house sold for unpaid taxes, times were tough).
Now the above was before the days of Fannie Mae, which had been set up as a Federal agency (Converted to a private company in the 1960s) in the 1938 as an intermediary between local banks that held mortgages and investors who wanted long tern investments. Prior to Fannie Mae these two groups had no way to interconnect, with Fannie Mae the local banks could sell their mortgages to Fannie Mae who then groups them together with other mortgages and sold them to investors who wanted long term investments. One of the thing Fannie Mae found out and implemented was that investors wanted a 20 years source of income, and since most people paid off the balance of their mortgage in about 20 years, these two sets of facts were compatible. Thus was born the modern 20 (or more) year mortgage (At the time Conventional bankers said something like Fannie Mai could not worked, but it did work for over 70 years). Do to the creation of the 20 year mortgage with the invention of Fannie Mae bank the problem of banks "calling in" a mortgage has not been possible. The invention of Fannie Mae and the modern mortgage made old fashioned one year mortgages obsolete (There are earlier long term mortgages but limited in numbers and more known as the example FDR used when he set up the modern Mortgage system).
The problems for the Modern Mortgages started in the 1960s. JFK liked Deficits, for a small Deficient kicks the economy in the ass and gets in re-started (People forget the Recession of 1957 was the worse recession between the Great Depression and Reagan's 1982 Recession). To get the economy moving from the 1957 Recession Eisenhower (And Nixon who ended up acting a President During Eisenhower's recovery from his Heart Attack) followed the standard mantra, balanced the budget. Do to this policy of a balanced budget the Economy recovered from the 1957 Recession slowly (And the slow recovery was the chief reason JFK won in 1960). JFK upon taking office started to run small deficits to get the economy booming, For this the 1960s is the best decade till the 1990s for economic boom (Remember the term "Reagan's was the best peacetime economy" while that was because the GOP wanted to avoid the even greater boom of the 1960s by calling it a "War time" economy).
Anyway JFK's policy as to the economy was continued under LBJ the economy continued to boom, even as the US committed more and more resources to the war in Vietnam (And after 1964 to LBJ's war on Poverty). This lead to what most economists at that time considered excessive federal proportion of the overall economy AND excessive budget deficits. Congress addressed the first problem (Excessive proportion of the Economy under the control of the government) by setting up Fannie Mae as a private company in 1968 (and making Freddie Mac, so there be two companies to compete in the mortgage resell business). LBJ then balanced the budget in 1969 with a temporary income tax hike (Which Nixon, upon his election in the fall of 1968 refused to continue) AND the fact that Fannie Mae was no longer a Federal Program. Thus deficits became worse under Nixon, even as Nixon gutted the Great Society Programs of LBJ, and started his "Vietnamization" program for South Vietnam (An additional factor was that in 1970, the US for the first time ever, became a net importer of oil, gasoline prices jumped 10 cents, which does not sound like much today, but that is a huge increase when it represents 25 cents per gallon to 25 cents per gallon, i.e. a 40% increase in price).
As the 1970s went forward, the policy of the 1930s continued to be applied, but you had a slow but steady increase in the inflation rate do to both the increase in the price of oil AND the excess deficits used to pay for the Vietnam War. Furthermore, Nixon found out from his years as Eisenhower's VP and watching JFK and LBJ that if the President produces a deficit budget, he can set the agenda on what he want federal funds to be spent on, but if the President provides a balanced budget, then Congress has control (i.e. Congress decides what get spent on in a balance budget for Congress makes the final decision, but in a deficit budget all Congress can do is add to the deficit OR cut programs that the President has already set aside money for, either way Congress gets the heat for the change for once proposed by the President any part of the Budget has people who will fight to keep what the President put in the Budget).
Anyway as the 1970s went onward, Inflation became worse. As to housing this affected Savings and Loans (S&Ls) the worse, for many S&Ls had loaned out money at low rates of interests that by the mid 1970s were well below the inflation rate (i.e. the S&Ls were losing money in real terms while technically making money). This situation slowly became worse, but being 20 year loans not a series factor during the 1970s, but by the early 1980s many S&Ls were looking at an inability to loan money do to the fact their money were tied up in long term mortgages that no one wanted to buy from them (And held liable for these loans by the investors that controlled Fannie Mae and Freddie Mac). To "solved" this problem Congress lead by Reagan passed S&L "reform" packages that permitted S&Ls to save themselves by being "better investors". The problem was these "Reforms" permitted the sharks on wall street to take over these S&Ls and bankrupt them, causing the S&L crisis of the Reagan years. These same reforms also applied to the Banks starting in the 1980s under Bush I, for the "reforms" had "Freed" the banks from Government Red tape (And we can see the results today).
Just a comment that the System adopted during the 1930s worked for over 40 years (Into the 1970s) but rather then address the problems of Inflation in the 1970s Congress (Lead by the President) opt to kill the reforms of the 1930s rather then stop spending money on war toys. Those "reforms" lead to the S&L crisis of the 1980s and today's problem. Deficits straightens the Presidency, and for that reason no President will opt for a Balanced Budget except under the most unusual circumstances (Clinton's position in the 1990s as a Democratic President with a GOP controlled Congress is a classic situation, the GOP already wanted to weakened the Presidency so Clinton, by agreeing to work to a balance budget, Clinton prevented Congress from weakening the Presidency for Clinton forced the GOP to accept his lead on how that reduction should occur, also remember Clinton, like LBJ, only had one balanced budget and that was at the end of his term of office so minimal reduction in the power of the President do to the basic failure to fully reduce the deficit).
More on the history of Fannie Mae and Freddie Mac:
http://hnn.us/articles/1849.htmlhttp://www.alliemae.org/historyoffanniemae.htmlhttp://www.time.com/time/business/article/0,8599,1822766,00.html
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