The Washington times., 1928-10-27
SAFETY SOUGHT
IN REAL TY
LOANS

Hugh Herndon. vice president oi
the Commonwealth Bond Corpora
tion, New York, in q special report
made public today outlined what is
regarded by many Of the most
prominent financial houses through
%1t the country az the approved
procedure for safeguarding the un.
derwriting and selection Of real es.
tate loans, showing the extreme
care and ultra conservatism exer.
cised to satisfy the investors de-
mand for conservative, stable and
safe securities.
sgThe procedure In the creation Of
safe realty bond issues which has
proved efficacious, Herndon stated,
Comprises the Following steps:
Rigid Scruting
First: Applications are submit
ted to the corporations loan depart
ment which should consist Of q vice
president Of the company and q
staff OF experts. After an exhaus-
tive investigation Of local conditions
has been made. including the ap-
praisal by local real. estate experts
as to values and renting conditions.
and, providing favorable opinion Of
the application has been formed,
report is made of the loan depart.
nentss finding to the president Of
the corporation who refers TO spe-
cial committee such loan applica-
tions as are satisfactory 70 him IN
every detail. On account OF the
rigid procedure in such cases. Il is
rare IL more than five loans. out
OF every hundred schutinlZed, are
passed by the loan department.
Second: The special commute zee,
in the case OF such financial institu.
tions as follow the above procedure,
is made up as q rule Of the presi-
dent, an architect and a building
construction experta members of
the board OF directors. The archi-
tectural expert passes on the gem
eral layout of the building and its
adaptability for the use cOntem-
plated. The construction expert
passes on the cost Of the building.
Third: After favorable report
is made by the special committee In
the case Of any loan, the detailed
plans and specifications Of the pro-
posed building securing the loan are
referred to the supervising archi-
tects engaged by the bonding house.
Assurances OF the erection OF the
building in accordance with plans
and specifications is made certain
because Of the fact that a certifica-
ton OF the architect Is necessary
before the borrower can obtain the
money.
.sWhere q loan is made on a COM
pleted building, the corporations
supervising architects report on the
construction features and layout OF
the building and its adaptability to
the use for which it is planned. The
architects are usually assisted by
the corporations consulting engi-
neers. Assurance Of clear title to
the property, covered by the loan
and mortgage company"
Safety Assured
First mortgages on realty, issued
by UNDERSTANDING bond corporations,
according to Herndon, are thus SUR
rounded by every safeguard. In
addition to the security OF the land
and the building, the title of which
Is guaranteed by reputable title
company, he also called attention
to the fact that the payment an
nually of the interest, amortization
and taxes upon the property during
the entire period Of the bond issue
is Internationally guaranteed by a
strong building company.
1T NAV also be added, he said.
that fire insurance carried on all
such loans is carried for the full
insurabIe value of the building. with
loss payable clause made out for
the protection OF the bond certifi-
cate holders in favor of the trustee.
Further, as stated in the Herndon
report, it is now customary to carry
rent insurance so that in the event
of the destruction of the entire
property an income sufficient to
cover interest and amortization OF
bonds would be received while the
building is being replaced.