The Richmond Virginian. (Richmond, Va.) 1910-1920, 1912-12-08

ready mentioned Of these requirements
| viii sneak of real estate credit first.
The business OF a bank Is founded
on the hypothesis that the merchant
who borrows from Il viii be able To
repay the loan within three months or
One year al the most and this hypo-
thesis usurtiy accurds with the facts,
for tho average merchant makes many
turnoVcrs Of hls stock within that
space of time. If he did not he would
fail. and bring loss TO the bank which
trusted him. so the success and exist
ence Of both depend upon keeping their
capital always on the move.
Don't Cater to Farmers.
Such being the nature OF CONNER
ciai banks business 1t is evident that
the institution cannot render services
on any larger scale to farmers who
might offer their real estate for Sc
curly. The only permits Die indebt
edness FOR which real estate should
be pledged Is the purchase or inn
! pr1yement of 1t, and capital thus em-
/ ployed becomes fixed. 1t loses its cir
culatory form and behavior, and the
/ farmer can never recreate and repay
/ 1t unless the returns from the soil be
ample enough to allow him TO save
- - 'aA'ts :. 49,
{ for its amortization, ~ais means a
/ low interest rate in spite of the un-
toreseen occurrences which might
! arise in the long series of years re-
] CURED for it's accomplishment,
Although real estate credit can only
/ he granted with safety and convent
I ence to the farmers by this method.
I the operation falls outside the rules
= and customs of commercial banking
4 II IS far too slow and risky. a COM
mercia! bank would lose the name of
bank II ii kept a large volume Of such
paper in Its portfolio for any length
! of time. But once taken it would
/ have TO be kept, for its characteristics
! are all against its circulating freely.
! National Banks Can't Help.
The law forbids national banks to
extend real estate credit. and limits
the dealings which other banks may
have In it The restrictions appear
highly reasonable when one consid-
crs the nature Of land and its reve-
nues. the statutory formalities provd-
ed for its transfer. the possibilities Of
defective titles, the legal technicali-
ties, delays and expenses in case OF
foreclosure and over and above all the
/ true principles which must govern
/ In using IL for security.
A farmer should never be compell-
1 ed to pay back loan in lump or
faster than he can make its equiva-
lent out Of the land. But the sinking
of capital indefinitely and receiving 1t
back in driblets is dangerous opera
tion for commercial and Industrial
banks. and entirely out of the aues-
ton for private money-lenders.
Amortization, however. Ia the de-
nominating feature of the land mort
gage systems Of all European nations.
The average length of a loan there
Is about thirty years. and many run
j for seventy-flve years. The annual
/ sum paid by the borrower is COM
posed of the interest rate, the pro
! alta OF the cost of business. and an
/ installnent on the capital; and Is
/ called an annuity. 1t remains level.
/ with the same weight of interest,
1 through the entire term of the loan.
I but each year the actual amount of
7 interest. decreases and the amortiza-
ton items increase, so that by the
end Of the term the debt is COM
pletely wiped out
The percentage OF capital TO be re-
paid each year. under the amortiza-
ton plan, depends, of course, upon
the term of the loan. Thus. suppose
"a lean be granted at per cent for
ten years: thu annuity is 03.6S6S) a
little over 10 IL per cent; If the term
( he twenty years, the annuity lis
+ (S.Tt65), about s ITO per cent; If the
term be hfty years. the annuity Is
( t6.3444), a little over 6 1-3 per cent.
The longer the term the smaller the
annuity, so that in this last case the
payment on the capital becomes abb
solutely Insignificant and hardly dis
: tinguIshable from the interest rate. 1t
starts at "a cents per 500 the first
year. and at the fiual year 1t is only
1893: bat the annuity Of Ia per
cent remains tbs same for every year
OF the term.
The Correct Method.
These figures point the way to the
correct method for the farm mortgage
business in the United States Adopt
the amortization system, which is the
crux OF the entire European system,
aud there viii be few force iosures and
dispossessions That win no longer
bear progressively upon the farmers
m nds mortgage on the farm will
cease 10 be an object of dread Cap
ltaI Will flow in u bountful and IN
ending stream from the investing pub
lie TO the farmers and back again, and
70 looked upon az a benign factor In
the Development of agriculture and the
Improvement OF the soil.
+ But amortization or annual partial
payments of principal calls for spe-
F. cial institutions for it's full play There
may he either associations Of borrow
ers like the famous Landschaften or
Joint stock COMPANIES. But none of
the European Institutions with the
exception Of the Germany land banks