Evening star., 1934-08-04
LOANS EXPECTED
To Be MADE BY
MIDDLE OF MONTH
Moffett Says Success of
Campaign Hinges on Pri-
vate Agencies.
WASHINGTON COMPANIES
READY TO COOPERATE
Laws and Charters May Require
More Security Than Mere
Personal Pledge.
BY VINCENT TUTCHrNG.

Eighteen thousand financial insti-
tutions throughout the country were
being contacted by the Federal Hous-
ing Administration this week in
preparation for granting insurance Of
modernization loans the early part
OF next week.
From the list of the Federal De-
poSit Insurance Corp, the Recon-
struction Finance Corp, and the
Federal Reserve System, as well
as other sources, the r. II. A. has
assembled a complete list Of all In
stitutions eligible TO come under the
Housing Administration plan. APP
proximately l5o,0 copies Of the rules
and regulations covering operation Of
the act win 60 forward TO these con-
Germs next week, and by August is
the advancement OF funds by them
will commence, with the Government
guaranteeing against losses up to 20
per cent of the total loans of each.
Details OF the modernization credit
plan are being guarded with utmost
secrecy until the Housing Administra-
tion Is ready to make them public.
However, the interest rate Is ex-
pected TO be lower than 1t has ever
been before for this type Of Loan
probably around 5 per cent.
Cooperation Necessary.
Success OF the operation, James A.
Moffett, Federal housing admins
traitor, emphasizes, will hinge on the
extent to which private industry and
private lending agencies cooperate.
The administration takes the stand
that 1t Is providing the necessary ma
chinery; after that, 1t Is up to private
businSs to do the rest.
The method OF operation Is set forth
by Government officials as follows:
A man whose house is already
mortgaged, but who is meeting his
payments and taxes, desires TO re-
place the roof on his house, or store,
or shop. He obtains bids from con-
tractors and applies to his bank for
a loan. If the bank finds him good
moral risk and able to pay on loan
in installments, 1t may arrange TO
lend him the funds he needs to pay
for the work or, upon satisfactory
completion of the work, the bank
paws the amount Of the loan to the
contractor to settle the bill. The
borrower may make out his note
either to the bank. or else to the
contractor who, in t.rn, sells 1t 20
the bank. Loans are limited TO
$4,000.
II the note meets certain simple
conditions prescribed by the admin
istrator as to interest, service charges,
plan Of repayment and other terms,
the bank may have it insured by the
Federal Housing Administration. This
insurance may protect the bank
against ell losses provided they do
not exceed 20 per cent Of the total
amount Of its undermining credits.
Thus, If a bank has loaned a total
OF $4,000, it viii be reimbursed for
all losses up to $4,000. Since the
losses likely to occur should run much
less, this type of loan becomes one OF
the safest that a bank can make,
officials state.
Bank Further Protected.
As a further protection to the bank
O provision of the act permits the
administrator to discount modernizing
credits up to 100 per cent of their
face value, thus making them highly
liquid.
Included among financial houses
which are eligible to be insured are
commercial, savings and industrial
banks, trust companies, finance COM
panies, mortgage companies, building
and loan associations, production
credit associations organized under
the farm credit act of 1888 and other
institutions. The period during which
the loans may be made is from June
n, this year, to January /, 1896. At
least $1,000, 900, 900 of modernization
credit can be Insured under the terms
OF the act, which limits the policies to
$200, 100000.
An important condition is that the
loans must be for actual alterations,
repairs and Improvements upon real
property, and may cover any type Of
improvement to the premises. Di-
version OF funds from an insured
modernization loan to any other use
is not permitted, since it would in
volve collusion and fraudulent mis-
representation and be subject to fine
and imprisonment.
Although q modernization credit
need not be secured by more than the
CONTINUED on Page 2, Column -