Evening star. [volume] (Washington, D.C.) 1854-1972, 1938-08-20
FIJI. A. MORTGAGE
| SYSTEM IS HAILED
Part in Home Buildings
/ Evolution to Investment
Z Basis Praised.

I Home building in America is evolving
from a speculative to an investment
basis, and the F. H. A. mortgage guar
antee system is making an outstanding
contribution toward the achievement
Of this goal.
This Is the gist of an article by
ROLAND ]. Hamilton, president Of the
American Radiator Co., published in
the July issue of Dun's Review. Mr..
Hamilton is a member of the Business
Advisory Council of the United States
Department of Commerce.
I'm the older countries Of Europe,
real estate mortgages are considered
second only to government securities
as a sound investment" wrote Mr..
Hamilton. There are significant rea-
sons for believing that the trend in our
own country is toward this eventuation.
Our country. residentially speaking,
has been built on venturesome or
speculative money. Being built in q
large degree on speculative basis,
the level of interest costs has been
high-at least 9 per cent, when pro-
jected over a term of 20 to Is years,
and including factors in this high in
terest rate Is that there was little real
expectation of repayment of the mort
gage. All too often the mortgage re-
manned unpaid after the building be-
came obsolete, and both debtor and
creditor suffered.
Groundwork Is Laid.
To-day, thanks to the abundance
Of money available on mortgages guar
anteed by the Federal Housing Ad-
ministration, the average interest rate
is only ~ to S per cent. The F. H. A.
has instituted the long term, amortized
mortgage, under which regular pay
ments are made on the principal. The
investment rating is improved because
of the increased security afforded by a
declining debt. The F. H. A. has also
set up construction standards, sub
division supervision and other safe
guards to insure the investment value
of homes coming within its jurisdiction.
1t has laid the groundwork for the
evolution of residential building from
q speculative to an investment status.
Economic history will probably accord
these activities an importance much
beyond our current appraisal.
What does low mortgage interest
mean to a typical family? This
family has an income, say Of $4,000
per annum. 1t desires to build home
costing $4,000, and there is $500 in
the bank with which to start. Had
this project been carried out 10 years
ago, with the resulting interest on
first and second mortgages, plus taxes,
insurance. maintenance and deprecia-
ton, the load would have been crush
ing Today this family could borrow
$4,000 on guaranteed mortgage
amortized over period Of 20 years
at an interest rate not in excess of
5 per cent. The true cost of this
home, in terms of carrying charges, is
probably 20 to 80 per cent less than
would have been the case 10 years
ago. This assumes like cost of build
ing, although construction costs in
general are lower than they were 10
years ago.
Losses Relatively Low.
"But even under conditions of high
interest rates. the loss of homes has
been relatively low. Considering that
until very recently the average home
mortgage had a maximum term Of
five years, and that substantially every
such mortgage in the United States
came due during the depression, the
low record of casualties is truly re-
markable. It has been stated that
100000 were lost by foreclosure be-
tween 1926 and 1886, and 100000
more saved by the H. o. L. C.. This
was offered to prove the fallacy of
home ownership. But the writer
failed to mention that this total of
100000 casualties was just about
10 per cent of the total number of
single family dwellings in the United
States. Do you know Of any other
class Of investment that suffered so
little? The homes of our people are
basically sound investment, and
where this has been otherwise in
individual cases it would usually be