Evening star., 1934-02-03
L0NG-TERM HOME |
FINANCING IS AIM
Object Is to Eliminate FIRE.
uuent Renewals Of
First Trusts.
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ciently supplied with home financing
facilities, and to finance desirable i'm
provemeIts on homes on which the
Home Owners Loan Corporation has
already made loans.
The first two of these will supply
the machinery through which private
financial interests will be influenced
to do away with the practice of ac-
cepting second mortgages. The third
will see the principle actually applied
and at the same time will provide the
means of improving the security OF
the Home Owners Loan Corporation
for money already advanced to bor-
rowers.
Partial Federal Assistance.
No additional appropriation for the
activities is to be asked. John H.
Fahey, chairman, explained that the
money necessary will be made avail
able from the corporations present
resources. the Reconstruction Finance
Corporation and from private capital.
In fact, the bulk of the required funds
probably will come from private
sources, with only partial assistance
from Fedeal funds.
From the beginning of its activities
the Home Owners Loan Corporation
has been guided by actual values in
extending funds to distressed mort
gagees Mortgages have been limited
to a maximum of 80 per cent of the
appraised valuation of the property
involved In cases in which first
and second mortgages exceeded that
proportion the corporation has re-
quired the retirement OF enough OF
the Indebtedness to come within the
limit.
For example a home owner has
given a first mortgage for so per
cent Of the value of his property
and then has added a second mort
gage for 80 per cent more. In order
to obtain the aid of the corporation
he has been required to pay 10 per
cent of his whole debt and then give
the corporation single first mortgage
representing the two trusts.
But in the new arrangement the
necessity for one usual practice is
removed. The new first mortgage
covers a period Of Is years and the
debtor knows long in advance just
what monthly payments will be re-
quired to amortize the debt
Under the program for home i'm
provements the corporation has
learned that on many of the properties
on which it now holds liens no re-
pairs whatever have been made in
the last three or four years. Conse-
quently deterioration has taken much
from the sale and collateral value.
A comparatively small sum spent for
modernization will enhance the value
Of the property to the extent that
the corporations equity will grow sew
eral hundred dollars.
No Second Mortgages
BY offering to advance money for
this purpose the corporation does not
intend to accept a second mortgage.
Instead, in case the additional funds,
plus the mortgage already given, do
not exceed 80 per cent of the ap-
praised value, the mortgage will be
rewritten to embrace the total amount
Is a single item.
1t was pointed out that in most
OF the loans already made by the
corporation a sufficient margin re-
mains to care for the modernization
BY that Is meant the loans now
represent much less than 80 per cent
and the additional loan will not raise
the debt beyond that figure.
In developing Federal savings and
loan associations and assisting pri-
vate institutions through credit ex-
pansion, the corporation hopes to es-
tabish the practice of levying sin
gle mortgage on homes and remove
altogether the use of second trusts.
The plan is an adaptation to Amer
lean needs of a British practice OF
some $50 years standing. England
. century and a half ago adopted the
practice of long-term financing, un-
der which a single mortgage or deed
OF trust covers the entire borrowing
by the homeowner Usually such
loans run for a period of about Is
years Thus the borrower knows long
in advance just what he will have to
do and the frequent renewal of his
mortgage is unnecessary.
A similar plan has been the aim
Of organized building and loan inter-
eSts for some time, but one weakness
has prevented its successful operation.
Here, a depositor in a building and
loan association has been made to I'M
derstand that his money is available
on demand and that 1t will earn a
fixed interest, usually per cent. The
Home Loan Bank Board believes that
such liquidity Of assets has partially
defeated the long-term financing plan.
Urge Long term Deposits.
The English practice Is to demand
that investors make long-term de-
posits, and earnings are predicated
upon the fulf1llment of that condi-
ton. In case demand for the deposit
Is made before the stipulated period.
the investor will get-not a guaran-
teed return-but only his share of
the limited earnings of his invest
ment. If, during the shorter period
he has left his cash on deposit, the
money has been invested, but has
earned nothing, then the depositor
will have to accept the consequences.
In some cases he takes loss on his
investment and withdraws less than
he deposited.
The Federal home financing agen-
cies hope, both by precedent and by
education, to establish the long-term
deposit custom in this country. They
point out that foreclosure is less like
" to become necessary because of de-
fault that earnings are more easily
assured and that credit is less likely
to become stagnant
Through the measures to be asked
next week in Congress, the bank sys-
fem and corporation hope to have
the machinery by which the work can