Evening star., 1935-05-18
INTEREST IS FIXED
ON SLIDING SCALE
Adjusted Rates Applied to
individuals According to
Credit Standing.
OF deep Importance to millions Of

OF deep importance to millions of
home owners and to all lending insti-
tutions is the problem OF adjusting
mortgage interest rates to the indi-
vidual risk. A plan of adjustment de-
veloped by Middle Western Federal
savings and loan association is de-
scribed in the current issue OF the
Federal Home Loan Bank Review,
issued today. The association in ques-
tiou is able, by employing this method,
to give the borrower on the highest
quality loan the benefit of the lowest
possible interest charge.
The institution first established a
minimum rate, consistent with the
cost of securing investment money
and of servicing the best type of loan.
Then four higher rates were set, each
y per cent above the preceding rate,
and applied to individual loans ac-
cording to a list of risk factors for
each applicant for loan or for his
property.
A study of the yardstick thus de-
veloped shows that the association can
afford to grant its lowest rate to the
owner-occupant of one-family mod
ern. fireproof home located in a
restricted section having fire protec-
ton. wheu Cd the monthly payment
Is 20 per cent of his income or less,
(2) the ratio of the amount Of the
loan to the value of the property is
low, (3) the loan will pay out within
IL years. a. the borrower carries life
insurance assigned for payment of the
loan and go he has good record Tor
paying his debts and has no part OF
his income pledged on other INSTALL
ment purchases.
Average" Risks.
From experience. the institution
knows that the majority Of its loans
represent an average" risk, requiring
service costs or losses which call for
an interest rate per cent higher
than that justified in the ideal loan
described above.
The association reports that it has
applied this rating system to all the
home loans on its books, without
causing a single objection from any
of its borrowers. 1t asserts that,
aside from value in adjusting rates
to the actual degree of risk, the plan
of low mortgage cost helps to improve
American housing standards 1t puts
a premium on good design and con-
struction, and On city planning and
coming, since the opportunity to secure
lower financing charges leads home
owners to exercise greater care in the
1f H. a1,,cfy1,ntinV and tho
extent to which neighborhood restric-
tions help to preserve the character OF
the district.
Reduction Authorized.
The May number of the Review also
announces authorization for reduc-
ton to 8 per cent in the rate charged
by the II Federal Home Loan Banks
on short-term advances to their 3,252
member home financing institutions,
which Is expected to make additional
reserve funds available for private
home financing throughout the coun-
try.
Another article in the May Review
displays newspaper and mail adver-
tising now used in announcing insur-
snce of shares by State chartered in
stitutions approved for such insurance
by the Federal Home Loan Bank
Board. In its June issue the Review
will begin a series of articles on the
practical steps that may be taken by
lending institutions in order to raise
standards of community planning and
home construction with resulting
greater protection to their own invest
ments.