Evening star., 1933-12-16
STABILITY |SSEEN
IN THE FINANCING
OF REALTY DEALS
New Sources of Mortgage
Money Thought to Change
y, Conditions.
TRANSACTIONS EXPECTED
TO BE ON LONG TERMS
Experiences During Era of Depres-
sion Believed to Have Taught
Valuable Lessons.
BY VINCENT TUTCHING.

BY VINCENT TUTCHING.
With new sources of mortgage money
now becoming available, leaders in the
real estate field see prospects of adher-
ence in the future to more stable meth
ods of real estate financing.
A definite swing from the short-term
home financing plan, with its double
mortgage, to the longer period amortiZa-
tion method with its added protection
for both home buyer and real estate
investor, is seen as one of the primary
elements of this change.
The need for sounder and fairer
methods of home financing has been
demonstrated, observers declare. as one
of the needs of present-day real estate.
They see improved set-ups for home
purchasing emerging as the result OF
experiences during the era OF depreS-
sion, with its accompanying decline IN
property values and increasing volume
Of home foreclosures.
Better Construction.
Such improvement, especially with
respect to the long-term mortgage, is
bound to result in a better class OF
construction; more security in the
home and reduction in the cost of ade-
quate housing.
OF paramount importance in the re-
turn to prosperity is the rebuilding OF
the real estate and building market,
it is pointed out. But just as impor-
tant in this rebuilding is the avoidance
of those weaknesses revealed during the
period of economic stress.
Real estate, for years one OF the
soundest forms of investment, has been
put in a bad light largely because of the
banking policy as to mortgage loans,
combined with the attitude of the So
called Investing public" Those VINO
entered the field with the idea OF re-
newing short-term loans were the IN
yestors first to demand iquidity when
the storm broke. Beneath the wreckage
was the poor home owner who saw MS
equity wiped out to satisfy short-term
mortgage that could not be renewed.
The volume of foreclosures which fol-
lowed did their bit to further damage
the market The Home Owners Loan
Corporation was then created to halt
this dumping" of properties In the
field.
Long Terms Advocated.
Wider use of the long-term, straight
Kan as a fairer means OF nome pur-
chasing is strongly advocated Dy un
biased experts ia the real estate ana
mortgage BUSINESS, VIII 4AO~ 90 S'~-
lated with the Federal agency.
In the Home Owners Loan Corpora
Mon, the Government feels it has set
IN not only a great, Nationwide rele1
crsanization for distressed home owners,
b,it also a model home financing
restitution. It has outlawed the snoIt
term" loan and the double trust. its
man is a 15-year straight loan. with
interest at S per cent, based on oo Per
cent of the appraised value Oh the
property. - ~.
Demonstrating the soundness OF the
longer period amortization plan are the
.finenciaI conditions of the building and
loan associations of the country, Wnlch
handle this type of financing. THESE
institutions have Jared better during
the last few years than any other hnan-
cial houses.
The placing of fresh money in the
home building field by the larger In.
sarance companies-a development Oh
tn. last few weeks-i further Demon
etrA ton of the stability OF the long
: term loan adopted almost UNANIMOUSLY
by these organizations.
Declared "Vicious System"
In the District of Columbia especially,
and throughout the country as well,
the short-term loan is being looked
upon more and more as vicious
system" of home financing. The double
mortgage has been shown as one OF the
principal causes of foreclosures during
the period of economic stress.
These loans are made on the theory
that they may be renewed in three
years time or so. They are made with
out regard for the possible future
condition of the real estate market or
the future availability of reflnanc1ng
money
TO cite a hypothetical case: Home
buyer "a deposits $500 down payment
ON q house costing $500. A first mort
gage of $4,000 is written against the
property and a second of $4,000.
Monthly payments on the second trust
are fixed at $40, plus interest, which at
the outset is s18. Interest on the first
mortgage is $40 month, bringing the
total payment to $78. This figure
would, of course, be reduced as the
interest charge declines. Other finan-
cling set-ups may fix the monthly ngure
at this amount. or greater. the total ap-
piled against the principal increasing
as the interest amount is decreased.
This does not include taxes. At the end
OF three years 1t becomes necessary to
renew the first mortgage, at minimum
commission fee of S55, plus insurance
and costs, amounting to approximately
5000. There is always a possibility, too,
that curtailment of the principal be
demanded at this time.
Faces Foreclosure.
There still is an outstanding encum-
brance of $6,560, of which 81, $50 re-
mains on the second trust. At the end
of another three years it again becomes
necessary to renew the first trust, with
Continued on Second Page.)
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