The blanket mortgage

The original concept of blanket mortgage probably began with a house builder.

The builder obtains an agreement with a lending institution to cover (blanket) it financially in the construction of a multiple housing project.

The original mortgage deed signed by the builder will cover the entire project, and as the construction of houses progresses, the borrower will be given loan advances to pay the bills.

Finally, when the houses reach the selling stage, a buyer for house number one will appear and sign an agreement to buy the first house from the builder, subject to credit approval.

The builder then marches the buyer down to the blanket mortgagee's office where a mortgage application is processed. If approved, the one house sold is taken off the covenant in the builder's blanket mortgage and a single mortgage for the house buyer's signature is prepared.

The builder and his lender proceed in this fashion until all the houses are sold, and the original blanket mortgage which covered the entire project is reduced to zero and discharged.

This is a very favorable method for large lenders to place funds, because they can do it in large chunks initially, which will be reduced and spread over hundreds of individuals eventually. It makes for easier and faster accounting of the lenders' budgets because of the size of the initial mortgages.

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