The New York herald., 1921-06-03
FINDS LENDERS GOT
ENORMOUS PROFITS
ON BUILDING LOANS
Untermyer UncOvers Trick
of Forcing Borrower to
Buy Other Realty and
Pay Extra Fees.
BIG BONUSES CHARGED
Insurance Companies, Bank.
ers and Brokers Accused
of Gouging the Public
in Rates OF Interest.
USURY IS SEEN In RATES
Fire Insurance Exchange to
Reform It's Tactics to End
All Abuses Complained OF
in Lockwood Hearing.
UsURY IS SEEN In RATES

Interest rates on mortgage and build
ing loans. characterized by Samuel
UntermySf as so usurious as to con-
stitute an even greater deterrent to
material combines already exposed,
formed the subject of inquiry at yes
terday,s session of the Lockwood legis-
lative committee.
The investigation took this tack
after the members of the New York
riedly called a meeting for yesterday
afternoon and asked Mr.. Unterrnyer TO
submit recommendations for modifica-
tion and reform in its practices. Mr.
Untermyer sent list, which was not
to be regarded as conclusive. but only
as a basis upon which to work. and
then suspended this phase Of the COM
mittee's inquiry until next Tuesday. IL
was understood yesterday that the
voluntary offer of the insurance ex-
change to reform itself was the direct
result of the influence and suggestion
VI IlciiIy iINdiS, tialliidh VI tAAS SS~~& -
of directors of the Continental and
other companies, who testified before
the committee on Wednesday.
The obstacles put in th.s path OF pros
pective builders by mortgage and loan
companies and private individuals spe-
calizing in second and third mortgages
were formidable and netted handsome
profits for the lenders. These were
anywhere from 10 per cent up. In some
cases. Mr. Untermyer showed. the bcr-
rowers were forced to pay high interest
on money they never received. That
was where mortgages were purchased
at two-thirds or less of their face value.
In such cases, where the principal was
paid in quarterly instalments. the rate
was shown to be practically incalcuia-
BILE. AS F.. III. Parsons. a chartered ac-
countant retained by the committee. put
It. as the debt approached zero the rate
of interest approached infinity.
Innumcrable Ways to Gouge.
But the rates were lot all. There are
brokerage fees, bonuses and disburse-
ments. and on top of these II was fire.
quently shown large lending companies
like the Prudential Life Insurance Cori-
pany and tho Mutual Life made 1t =
practice to compel borrowers. az a con-
dltion to making the loan. TO buy and
carry on mortgage properties they did
not want, and which in many cases
were undesirable. The cash payment
involved in each one Of these forced
sales was deducted from the amount Of
the loan. still further reducing the
amount of cash the borrower obtained
through the transaction.
When this system. for any reason, was
not resorted to II frequently happened
that the unfortunate mortgagor was
compelled 10 accept the net face value
of his loan i'm Liborty bonds or Victory
notes at 20 or 81. Then IL lie deposited
these somewhere else as collateral for
a cash loan TO begin his building he
had to pay interest all over again on
the last transaction.
Mr.. Cntermyer went into the history
or scores of transactions of two or three
OF the largest mortgage brokerage
houses In the city. covering the period
when the building situation was most
acute--from 1916 TO date. In all cases
there appeared In some form or other
additional charges that made the interest
on the original mortgage a practically
Insignificant factor in the situation.
Committee members showed keen ,a-
terest In the forced sale OF undesirable
properties 10 borrowers In some cases
these properties wero in Hobokcn and
Newark. Other times they consisted OF
vacant lots. tenement buildings or un-
improved properties In outlying districts.
Occasionally the lending compan,es
or banks varied the scheme ana insisted
that the borrower take junior interest
In some second mortgage held by toe
mortgagec.
The extent OF these transactions and
their effect upon the building situation
may be judged by the fact that the
committee has received reports from asa
firms and institutions tQ which It sent
qucstionnaires.
borrowers BecoSs- Bnyers.
Sidney w. Hughes OF Hughes & Ham.
mond, mortgage brokers 81 Pine street.
was one of the principal witnesses He
said his firm had negotiated a loan OF
si.45o.ooo last August for the Blockton
Realty Company upon the block on the
west Side OF Seventh avenue between
Thlrtioth and Thirty first streets. The
lending company was the Mutual Lifo
Insurance and the borrower Ephraim
Lev. Incorporated az tho Block
ton Realty Company. During the In
vestigation Mr.. Untermyer asked sew
oral witnesses n II was not fact that
the lcnCing companies or individuals tn
corporatcd themselves or compelled bor-
rowcrs to incorporate so that they might
not later plead usury.
Mr.. Untermycr brought out that
Leyy's property had been appraised at
$4,000. so that tho transaction was
prime loan for less than half the ap-
praised value OF the properties covered
By the mortgage. Then he asked Il tho
Blockton Realty Company received the
amount OF the loan In cash. Mr.. Hughes
began an affirmative answer but sud-
denly was checked b. the lawyer.
Don't YOU know" demanded Mr.. Tn