Evening star. [volume] (Washington, D.C.) 1854-1972, 1867-09-09
BUILDING AND LOAN ASSOCIATIONS

BUILDING AND LOAN ASSOCIATIONS. |
Editor of the Evening Star: I observe Ia your
popular journal that there are several "build-
Ing associations" in operation in this city. an d
being desirous Of awaiting myself Of such ben
eft as may be derived by aNconnecuota with
such institutions, am impeiled e req uesf that i
you favor .benighted individuals like myself
with some light on the subject. I have made
inquiries Of several as to how "a ch institutions
are cond ucted, their sources OF pront, &c. &C.,
but they, though well Informed and quit. in
telligent about other matters, could AFFORD me
but vague explain alton. Believing that this
question is not understood by the majority of
our WORKING classes, and that an article on the
subject would In terest your readers equally
With myself, l beg to subscribe m vself,
A MECHANIC.
The details OF the plan generally in use in
the United States may be thus stated
l. The Association is q mutual benefit and
stock company.
2 Each share OF stock is one dollar a month,
paid IN monthly during the term of the exist
ence Of the Association. a.. a
3. The entire amount paid in each month is
put up at a monthly meeting of the stockhold-
ers, and sold to the highest bidder or bidders
smong them, at a premium. This premium L.
deducted from the gross amount and the per-
son bidding receives the balance, and Is re-
Quired to secure the Association for the ad-
vance by mortgage or deed of trust on real
estate, equal In value to the net sum which he
receives. r- ". - -
4. A stakeholder is allowed to bid for two hun
dred dollars on each share he holds; and after
he has borrowed, pays, in addition to bis
monthly dues for shares six per cent. per an
mum on the amount for which he bids The
interest is paid in monthly with the shares.
For Instance: Suppose the capital stock of an
Association to be one thousand SD ares; at least
a ma nd toll x,ill t,o
sold out each mouth. Surprising an individ-
ual holding five shares bids at monthly
meeting for the whole amount at forty per
cent premium, he receives six hundred dol.
lars, the net sum after the premium is de.
Quoted, and is required thereafter to pay in
addition to bis five dollars monthly for shares,
six per cent. or q thousand dollars, which
would be sixty dollars year or i've dollars a
month. In other words, he pays five dollars
monthly Tor his shares, and the same amount
as interest while the Association lasts.
S. The Association winds up when 1t is able
TO divide two hundred dollars to each share OF
stock. The stakeholder who has purchased
an advance, is debited in his account with the
premium he has bid. Thus, if he owns Ave
shares, and has bid for a thousand dollars at
forty per cent, (as in the case supposedly he
receives six hundred dollars, which In the
winding up of the Association is accounted
q full settlement, the premium being the clear
protit Of the Association. In addition to the
profit derived from premiums, the Associa-
ton, by loaning out with its other funds the
amount paid in monthly for interest, actually
compounds interest twelve times year. while
lis individual stockholders are paying but
simple interest. BY this rapid mode OF multi
plying money, these societies are generally en-.
abled to wind up in from five to eight years,
a ma iOd
At first sight this might seem to be az oppres-
sive ard usurioas mode Of ioaning money, the
borrower being required to pay premium at
the outset, and thereafter an interest of per
cent, not simply on the amount he actually
receives but the amount for which he bids
and this would be It's character, If the Dor.
rover and lender were here distinct parties,
as is the case in ordinary loans. Bat In this
instance an individual borrows from a con-
Germ OF which he is himself component
part, and derives his proportionate profit from
the investment and reilyestment of the yery
premium and interest that he pays for the
loan. So great is this difference in his favor,
that borrowing from the Association even at
~ per cent premium, and paying an interest
besides OF per cent, he does not really pay
as much as the man who borrows in the ordi-
nary way at per cent
To illustrate: An individual owning five
shares bids for a thousand dollars at forty per
cent; this would be four hundred dollars on
the thousand, leaving him six hundred dollars
net For the use of this six hundred dollars
he pays six per cent. on a thousand dollars
besides his shares, which are five dollars q
month: that is, he pays, IN all one hundred
and twenty dollars year. Surprising the
Association to continue six years, (and at
tine rate OF premium named, it is not likely to
exceed this period,) he will have paid seven
hundred and twenty dollars for the use of six
hundred. Suppose, on the other hand. that
an individual Dorrows in the ordinary way
six hundred dollars at six per cent. interest
this would be thirty.six dollars per year. In
six years he Will have paid two hundrs and
sixteen dollars. He then refunds the princi.
PAL making, In all. eight hundred and sixteen
dollars he pays for the use OF six hundred
leaving an advantage in favor Of the borrower
from the Association Of ninety six dollars
The system OF Building Association we have
here illustrated is the one generally in use in
this country. In England, Building AssocIa.
tons are conducted on somewhat different
plan, the funds being loaned ont at fixed
rate OF interest. varying according to the terms
agreed upon tor the duration Of the society: q
priority of advances being determined by rota-
ton OF membership, or OF application, or by
ballot We have not space to day to set forth
the peculiarities of this plan, bur will endeayor
n