The sun. [volume] (New York [N.Y.]) 1833-1916, 1905-02-05
The REAL ESTATE MARKET.
.B0RTG IGR BONDS TO he LISTED
on THE SY0CK EXCHANGE.
4 Form Of Securities Never Tried Here |
Win he Introduced 10y the Lawyers /
MOrtEaBe-BOnd Go. Model supplied !
by The HE Credit Funclcr CT France. /

Company by those affiliated with the Law
yors Mortgage Company and The Law
yer7' Title Insurance Company Is of interest
az pointing to the development here of d
form OF business uniformly successful in
Europe for the last 1870 years. but never as
yet successfully transplanted 10 America
The mortgage bond business us conducted
abroad and as proposed here is explained
by Richard NJ. Hurd president OF the Law
yei9' Mortgage Company, in the article
which follows.
In ITO King Frederick of Prussia adopted
plan for a mortgage company which has
served as a basis for subsequent mortgage
companies in Germany France Austria,
Sweden, Norway, Russia Italy. &c.
OF these companies the Credit Foncier OF
! France il at once the largest and most stio-
cessful, and might be taken IA a model OF
the others. This company was founded in
1852, under Government supervision and
control, to promote the national welfare by
supplying loans on real estate at lower
! interest rates than those then current. II
was modelled on the great mortgage COM
| panes of Germany which had already
! been in successful and beneficial operation
for eighty years.
Its essential features were to grant loans
on approved property In Paris and the
! Departments at moderate rates, repayahle
either at fixed dates or, more commonly
l 10y amortization or annual payments sut1i-
Gent to cancel the loan in fifty or seventy
| five years. Against these loans mortgage
bonds were issued for an equal amount,
maturing in twenty TO seventy-five years,
but subject to call in installInents as amorti-
zation payments reduced the amount OF
outstanding mortgages.
The Government supervision at once
created confidence in the companys securi-
tics, and the wise limitation by law of the
conpany's earnings TO six-tentha OF per
cent. difference in interest rate between
the bonds issued and the mortgage loans
granted forced the anagement TO seek
profits, not in high rate loans with attendant
risks, but in a large volume of safe business.
The company was started with $4,000, 900
francs capital. which has since been in
creased to 100000 600 francs. With surplus
Of 10 Gsi 80 francs.
The Credit Foncier was also empowered
10 grant loans to communities, issuing
bonds against the same
The statement OF the total loans made
up to Jan. l. 1903, is As follows: Mortgage
loans 1854, 544 ,o33 francs; municipal loans.
3.l662l3 75l francs; total. g. 100 1871 1856 francs
The company had bonds outstanding
on Jan. /. 1908: Secured by mortgage loans,
500. 5SO.i72 francs: occurred by municipal
loans, l.5i693i,125 francs. total, 3,3l7 5l4 ,j97
francs
The loans made in 1902 were: Mortgage
loans l27.3lT60i francs municipal loans,
Is, $50, 3S7 francs; total. 206,O70,9Ss francs.
Ar 10 the distribution of the loans 1t is
Interesting to note that the mortgage
loans were made as follows In Paris.
2.92o 1888 francs; in the Depa rtments,
2.0i, 17s go francs.
While the bulk of the company's loans
were made in Parts AT the start, the rela-
tive proportion OF such loans has steadily
declined, and since 1877 more loans have
heen made outside Of Paris than in Paris.
In interest rates the Credit Foncier has
had the same experience a. other mort
gage companies Of gradually lowering the
rates on its securities as its credit strength |
ems the first bonds being f=ted at { per
cent. and the outstanding bond, on Jan.
! 1909, being divided a. to rate IL follows
Mort gage bonds at go .......l /, 5S7. 247 800 /
Mortgage bonds al . 00o........ "a SOS 600 I
Mortgage bonds az :. G0'o ....... $50. 7iS 500 /
Municipal bonds at a'o... ....... 7S7.47O. 400 |
bonds at 80'o. S73 G0i 600 [
The phenomenal success a a company /
in attaining a growth of $500 COO, coo Of /
assets IN fifty years demonstrates the pos /
sihilitieS of the mort gage business. when I
correctly planned and souudly managed.
BY contrast with the European mort
gage methods we may note the methods
adopted by the mortgage companies Of
Ncw York. These companies purch ase
from their affiliated title companies com
pleicd mortgages with title TO property,
surveys identity of signatures &c, guar
anteed by the title companies, and sell the
individual mortgages 20 investors, assign
Ing al papers. together with policy from
The mortgage company, guaranteeing the
payment of princlpal and interest Of the
Inortgnge.
A. the law now stands, certain investors
such as savings banks, would be limited
10 this direct form Of mort gage invest
'nent where all papers run direct TO the
Investor. and IL l. entirely probable that
unless the law is chan ged this direct method
of mort gage Investment will continue, !
On the other hand, there are large classes u
VI investors whose needs II does not meet
and who may reasonably he expected TO
Welcome the opportunity OF making long
term mort gage investment.
These classes would be: On Those invest
prs who now purchase fifty TO 100 year
railroad bonds and, municipal bonds, 10
tvold the annoyance OF constantly shifting !
mortgage investments maturing in from
one TO three years (2l small investors,
who at present have no opportunity TO
,uy mortgages in small amounts, and t3l
European investors who would not CON
-ider the purchase Of individual mortgages,
Ieingacclstomed only to mort gage bonds
Much has been written on the subject
jf the dcsirability Of making real estate
onvertible. toward which almost nothing
la. been accomplished in this country
In France. however, by the means of the
'rfdlt Foncier. some 5.0O00O0,0OO francs
lf real estate value has been changed into
100 franc or 900 franc bonds, which pass
rom hand to hand as a readily salable &c
'urity, and similar results have boon OBJ
aimed in other European countries.
When Credit Foncer Of America be-
zones established. issuing bonds in de-
nominations of sio0, $500 or 81 600 all OF the
cal estate value represented by the mort
yaecs deposited as security for the bonds
which in time will run up TO the tens or
hundreds of millions Of dollars. will te
cadily convertible. either in part a. So
rrity for loans or in whole by sale Such
'onds would he listed on the New York
Stock Exchange and also on the European
Exchanges. and part Of the function OF
he issuing mortgage bond company would
~ 10 see that their quotations remained on
steady basis
The advantages of introducing the Euro
enn method 20 the American investor
would he equal security. the mortgages
seiug the same; longer term to run, and
quicker convertibidty by maintaining stock
1chan9e quotations. On the other hand,