Evening star., 1937-12-02

N-~"S''n''
eral Housing Ad- n,,
ministration-are
relatively small.
One of the reasons why the public
looks askance perhaps at the idea Of
a prospective home owner borrowing
30 per cent and putting up only 10
per cent of the cost of house and lot
combined is that for generations the
customary lending has been on about
so per cent of the valuation, and then
second trust usually had to be pro-
vided for about 25 per cent and a
property owner had to supply the
remaining Is per cent as cash.
But it is overlooked by many now
adays that the old so per cent value
mortgage was renewed for three-year
intervals as rule and some of them
were never paid of or curtailed in
any way. Today the Government pro-
poses to stand back Of the banks by
insuring loans made on properties
that are to be paid of in monthly
installments spread over 20 years.
What does this mean as compared to
the old system?
$4,000 Property Illustration.
First Of all, in the case of $4,000
property, the monthly installments
on the $5,40O loan are such that at
the end Of five years the margin of
equity owned is % per cent, so the
loan is 70 per cent of the value of the
property. Also the property owner at
the end of the first five years is in the
same position as he was in the old days
when he had first mortgage of $4,000
and a second mortgage balance of
$1680. But the payments on that
second mortgage were usually heavy
and default in them might cost the
owner his property and complete loss
of his 81 $50 equity.
The second mortgage situation in
America for many years has been
notoriously bad. Heavy commissions
and extortionate charges often have
deferred those who have wanted to
build their own homes. 1t is true
that the second mortgage lenders felt
they were undergoing great risk
because the first mortgage holder
could foreclose the property and wipe
out the second mortgage lender un-
less the latter wanted to buy in the
house at a foreclosure sale and hold
1t for some future disposition.
If the property was properly valued
IN the first place and if there hap
pened to be a market in which the
house could be readily sold, the sec
ond mortgage lender could come out
all right, but too often as neighbor-
hoods changed their character or as
cities lost large pay rolls due to vari-
Gus causes, the value Of real estate
would 60 down.
Wars on System.
The Federal Government under
resident Roosevelt's leadership
stepped into the breach and deter
mined to wipe out the second mort
gage idea altogether by making SIM
pie first mortgage and requiring
monthly installments from the very
beginning. In addition to the interest,
. slight insurance fee Is charged
which is really reserve to take care
of the instances in which property
oWAAClo AdfC oCAduAGCu OIl IIlcl pay
ments and forced the lenders to sell
the property.
Thus every man who borrows money
70 build q home and meets his pay
ments punctually pays a slight fee to
take care Of those cases where the
payments are unfortunately not met.
The low rate OF insurance for hous-
ing loans now in vogue-and it is to
be slightly reduced by the Federal
Housing Administrations new plan
Is based on the experience OF the
American people with installment |
financing which, on durable articles |
that can be repossessed and readily |
sold, reveal relatively small loss to |
the lenders.
It should be clearly understood that |
the 80 PEI cent loan or 10 per cent |
down payment applies to houses of
$4,000 or under which are to be occu-
pied by teh owners themselves-that
Is, by the persons who borrow the
money.
Frees Funds for Buying.
What the small down-payment plan
really does Is to make it possible for .
family to use part Of its savings to
furnish and equip the house and this
In turn means business for the furni-
ture dealers and those who sell equip
ment Of various kinds for the small
homes. A couple. with $1,000 saved