The Pacific commercial advertiser., 1903-12-12

-
lateral security.
The most popular form of the secur-
ed note is the stock loan. Instead of
a, watch the borrower gives you a Ger
tificate of stock properly endorsed so
that in case of default in the note you
can at once have the shares transfer
red to a purchaser. Thus you have
absolute control of the security. There
are no stamp dues or other similar ex-
penses required. The usual term of
such loans is short,-three to six
months, and the rate at present is
eight per cent.
The depreciation clause in the COM
mon form of stock note is an exceed
ingly valuable feature. This clause
provides that in case of a decline in
the market value of the stock as shown
by quotations on the stock exchange,
the borrower must hypothecate addi-
tional stock or the lender may to pro-
tect himself sell all or a part of the
stock already given. Let me illustrate.
You loan, we will suppose, one thou
sand dollars on a block of Eva worth
at current quotations fifteen hundred
dollars. Your margin of safety, then.
is five hundred dollars. If the Eva
depreciates so as TO be worth but
twelve hundred, your margin of safety
is now but two hundred dollars, and
the borrower must give you three hun
dred dollars worth of additional secur-
ity, or you will sell. This provision
affords ample protection in all ordin-
ary contingencies. Stock loans. in
amounts of from five hundred dollars
and upwards, can be placed through
any of the responsible brokerage con-
Germs.
In mortgage loan the security is
usually real estate, which is transfer
red to the lender by a mortgage, i. e.,
conditional deed Of the property. The
selection of a mortgage is a matter re-
quiring experience and great caution.
1t is absolutely essential to have the
title of the property and all papers
thoroughly examined by competent
attorney acting exclusively in your in
terest Do not take any ones general
assurance that everything is all right:
much less the word of an interested
party. He may be sincere, but has not
the same motive for careful inquiry
that you have. The heavy charges for
legal services, stamps, recording fees,
and certificate or abstract of title,
though generally borne by the borrow
er, render this form of loan too ex-
pensive for other than long terms. The
current rate is eight per cent.
The weakness of the mortgage under
present conditions as compared with
the stock note is two fold. In the first
place as there is no means of keeping
an accurate tab on the fluctuation of
real estate values there can be nothing
in a mortgage corresponding to the de-
probation clause in the stock form.
Hence many holder of a mortgage,
unable to act till the maturity of his
loan, has been compelled in the recent
depression to sit helplessly by and the
margin of safety of his loan has gradu-
ally dwindled away and even disap-
peared altogether.
Again while the maker of a stock
loan inicase of default can convert his
security into cash by simply ordering
his broker to sell, the holder of a mort
gage under the same circumstances
must employ an attorney and endure
the expense and delays necessitated by
the complicated forms of foreclosure,
to say nothing of the possibilities of ex-
tended litigation.
The selection of safe mortgage is
further complicated at present in that
borrowers insist upon larger loans
than due regard to the uncertainty
of the market will permit.
Debenture bonds are simply mort
cages sliced for convenience in bor-
rowing. For example if plantation
wishes to borrow million dollars it
will not endeavor to find a single lem
der who will take the entire loan upon
a straight mortgage. For a mortgage
of a million dollars is too bulky for the
ordinary concern to handle. 1t must
gather the total sum from various and
scattered sources. It therefore makes
a mortgage to some bank or trust
company which agrees to- act as trus-
tee for all who share in the loan; and
this trustee certifies one thousand of
thousand dollar bonds each of which
is simply note of the plantation Sc
cured by the mortgage. In this man
ner safety and convenience are both
secured. The prevailing rate on local
bonds is six per cent.
In every form of loan the first ele-
ment for consideration is the charac-
ter of the borrower, or as it is termed.
the .'moral risk" No matter how good
the security, it is safer and more sat
isfactory to loan only to those whose
show integrity of purpose and
fair dealing. 1t is also preferable that
the borrower have other property than
that hypothecated and be not heavily
encountered with debt.
Before accepting as security planta-
tion stock or bonds, the investor
should inquire into the condition of
the property. An undeveioped planta-
ton is for many reasons inferior as
security to one fully developed and
that has proven its value by the earn
ing of dividends. The laws of some
states prohibit the loaning of savings
bank and trust funds on securities
that have not paid regular dividends
for a fixed number of years.
In leaning upon real estate choose
improved and income producing prop
erty such as in case you are compelled
Toroolac,Ird will fS$rfa