The Indianapolis times. [volume] (Indianapolis [Ind.]) 1922-1965, 1934-12-12
Trends
Saving Is Real in
Connection With
Hole Debts.
BY VINCENT s. LYONS
Times Financial Editor

A announcement from WASH
4 n ington says that the Home
Owners Loan Corp. has discovered
a method whereby some brokers
have been able to grab themselves a
profit Of per cent on handling
monthly payments of individuals
on mortgages. The statement has
been construed in some quarters as
the Inauguration Of some new type
of racket"
An analysis Of the situation, how
ever, discloses that such is not the
case. 1t just happens TO be one
of the curiosities which develop in
finance from time to time. The
operation is bona-fide. both the
home owner and the broker reaping
equal rewards of per cent on the
transaction. This profit will con-
tinue Just so long as Hole bonds
are selling at their present price.
The operation is very elementary,
but, nevertheless, interesting. Home
owners here whose mortgages are
held by the Hole are required to
send monthly payments on princi-
pal and interest TO the Detroit
branch Of the corporation. which is
the regional office for Indiana and
Michigan. These payments In a
large number Of instances are very
small; We shall state an arbitrary
average figure of $40.
A MAJORITY of the persons
n obliged to meet monthly pay
ments do not have checking ac-
counts and. as a result. they remit
the funds through the mail. The
amount of the payment. plus 10
cents for a money order. plus 3
cents for postage, brings the total
outlay of the individual to S1036
a month.
The HOLC has provided that its
own bonds may be rendered in
payment of this obligation and will
be accepted at par value. 1t is
here that the broker is permitted
20 intrude himself into the pic
ture. The "a per cent bonds Of
the corporation currently are SELL
ing around 90. or a discount of
points from parity. Therefore,
brokers can honestly offer home
owners a saving of 2 per cent on
their payment by procuring $1,000
Of payments and purchasing a $500
bond, which the corporation will
accept as representing $1,000.
The difference of $40, between
the market worth of the pa per
cent bonds and the value at which
the corporation will accept it, is
divided between the broker and the
home owner AS the broker makes
no handling charge for the trans
action. in fact he solicits the busi-
ness. the individual saves per cent
of his payment, plus the mail order
and postal charge.
TTNCLE SAM is the only loser
in the operation, for if the
current low value of the % per
cent bonds did not exist each
owner would make his payment
individually. Thus, 100 persons
paying $40 each would have to
spend a total of SIC in the post
Office. But the broker, by max
ing these 100 payments with
$1,000 bond. spends approximately
20 cents. leaving Mr.. Farley's de-
partment with $3.50 less of bust
ness on each $1,000 received by
the Hole.
This neatest trick of the week
has become so widespread that |
the Government agency has issued
a statement denying it had au-
thorized any outside agents to
make collections. This precau-
ton was taken after some over
jealous brokers had implied in
literature that they were author
lied representatives of the Hole.
OF course certain abuses can creep |
into the practice, consequently,
home owners should make doubly
sure that the brokers they are
dealing with are legitimate enter
priseS.
If the value of the Hole %
per cent bonds should advance to
par, the practice would automa-
tically end as the profit incentive
disappears. A further slump in
price, however, widens the profit.
Brokers are insured against loss
in their activity. always providing.
of course, that they can find
sufficient number of home own
ers with which to do business. If
they anticipate an thrush of home
owners to meet their payments in
this way by acquiring blocks of the
2sss and the bonds subsequently
rise. removing the profit advan-
tage, the broker still benefits from
the appreciation in the bonds