Building and loan association

“ In a building and loan association the money is put up at auction, usually in open meeting on the night or at the time of the payment of dues. Those who wish to borrow bid a premium above the regular rate of interest charged, and the one who bids the highest premium is awarded the loan. The man who wishes to build his house, therefore, and desires to borrow $1,000, must have five shares of stock in his association, must bid the highest premium, and then the $1,000 will be loaned to him. ”

“ And the Code otherwise provides that (§ 2348) domestic building and loan associations are excluded from the operation of the usury laws, but foreign building and loan associations are subject to them, and to enforce this public policy, thus declared by the statute, is not to give extraterritorial operation to our statutes. On the contrary, this corporation has come into the state, localized its business here through local boards scattered all over the state, and must submit such business thus localized to the operation of the laws of the state. ”

“ The percentage of loss in a building association is necessarily smaller than in the best-conducted bank. Its securities are all first mortgages on productive real estate, and loans are made to members only, and under the condition that the immediate repayment of the loan be commenced. The security begins to improve at once, by the repayment of a part of the principal each week. It is usual for each member of a family to become interested in the immediate repayment of a loan. The payment of building-association dues is constantly in mind ”

“ It is a moot question whether this method of obtaining money for the building of homes is more or less economical than that of obtaining it from the ordinary savings banks or from other sources. Sometimes the premium which must be paid to secure a loan increases the regular interest to such an amount as to make the building and loan method more expensive than the ordinary method of borrowing money, but a building and loan association has a moral influence upon its members, in that it encourages a regular payment of instalments. ”

“ Borrowing members receive par value of their shares in advance, and secure their compliance with requirements as to dues, fines, and interest by mortgage or otherwise. Prior to March 26, 1891, the association had a soliciting agent in Memphis, Tennessee, whose duty it was to solicit persons to become members of the association and to subscribe to its stock. ”

“ The time of the repayment of an [Pg 297] association loan is always present. The security afforded to building associations is much better than to savings banks and loan companies, even where the margin above the amount of loan is less because of this difference in plan of repayment. Again, the margin of security from the first is always sufficient to protect a mortgage and the payment of all foreclosure costs and charges. Furthermore, the rentals in case of foreclosure are, or should be, sufficient to pay all dues and other fixed charges. ”

“ Each shareholder, for each share named in their certificate, shall be entitled to a loan of one hundred dollars from the association, provided they shall first make application for such a loan upon a blank furnished by the association for that purpose, if the condition of the loan fund in the treasury shall warrant it. ”

“ The funds of the association were divided into two classes,-a loan fund and an expense fund. The articles of incorporation provided that 'the loan fund shall consist of all receipts which do not go into the expense fund, as hereinbefore provided, together with all interests and accumulations from whatever source. No money can be drawn from the loan fund for any other purpose than the making of loans on security, as provided by the by-laws, and to pay amounts due withdrawing shareholders. ”

“ There are building and loan associations throughout the country, usually organized to serve the needs of people like yourself, who wish to finance a home. Their plan of weekly or monthly payments, both on principal and for interest, has proved sound from the experience of millions of people as an aid to systematic saving. Loans may often be obtained from savings banks, trust companies, state banks, individuals, and trustees for estates.
Obtaining money on a second mortgage is usually not so easy. ”

“ The introduction of these large-scale factors, however, although they were steps in the right direction, could not correct the fundamental defects of the system. The large mortgage companies found it more profitable to make loans on large building operations; the building loan associations, although stimulating the production of small homes in many districts, did not use their financial power to influence an improvement in housing technique and architecture, nor did they promote large-scale methods of production ”

“ Other facts will be stated in the opinion:
'The Eastern Building & Loan Association of Syracuse, New York, is a corporation organized under the laws of the state of New York for the purpose and with the power of conducting a general building association business in New York and other states. Its plan of organization is similar to that generally adopted by such associations. Subscribers to its stock pay $1 initiation fee for each share of $100, and 75 cents per month as dues on each share, and certain fines on default ”

“ All remittances for advance, instalments, premiums, monthly instalments, fines and penalties, interest and premiums, and all other payments shall be made to the secretary of the association at the home office, and in registered letter, express or money order, or drafts. Individual checks shall not be received.
The other sections of the article provide for the manner in which the loan shall be made, upon what security, interest and premium, and covenants, the manner of payment and prepayment, and the enforcement of payment, and when shares may be canceled and forfeited. ”

“ The application was accompanied by a recommendation of what was called 'the local board' in regard to the wisdom of the loan. The local board consisted of certain stockholders of the association living at the applicant's place of residence, who had been elected by all the resident stockholders, and whose duty it was to advise the association at Syracuse concerning the value of the property offered and the character of the applicant. The local board had officers, one of whom was a treasurer, through whom members might, if they desired, forward payments due to the association at Syracuse ”

“ We cannot assent to the view that there is nothing to prevent the association from complying with the statutes. The mere filing of its charter in a particular office-the secretary of state's or some other office-might be easily complied with, but the deposit, with some responsible trust company or state officer of the state or some other state, of mortgages or securities of from $25,000 to $50,000 in amount, at the discretion of the state treasurer, might be impossible to comply with. ”

“ They are to be governed by the law of the place of performance, and if the interest allowed by the law of the place of performance is higher than that permitted at the place of contract, the parties may stipulate for the higher interest without incurring the penalties of usury. ”

“ It contracted with Bedford to make him a loan if it had the means in its treasury and his security was good. The state could not affect that obligation nor impair it. 'The obligation of a contract 'is the law which binds the parties to perform their agreement." 4 Wall. 452. The building association was incorporated under the laws of New York to make loans to its members, and rights to a loan accrued to membership. The condition of a loan existing,-means in the treasury, a tender of good security,-the contingent right became a vested one, a contract was formed ”

“ Far better for the public, the associations, and their membership, that many small loans be made rather than a few in number and large in amount. Moderate homes and a moderate price should be the criterion.... Their primary purpose was and should continue to be to promote industry, frugality, and saving, and convert the shiftless and discouraged tenant into a self-reliant and contented home-builder.”
Building societies since their inception have supplied the means for home purchasing, but these companies do not generally take any part in the erection of houses. ”

“ In carrying out demonstration programs, the Secretary shall include an evaluation of the effectiveness of entering into partnerships or other contractual arrangements including reinsurance and risk-sharing agreements with State or local housing finance agencies, the Federal Housing Finance Board, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, qualified financial institutions, and other State or local mortgage insurance companies or bank lending consortia. ”

“ Such alternatives shall be designed— (A) to ensure that other parties bear a share of the risk, in percentage amount and in position of exposure, that is sufficient to create strong, market-oriented incentives for other participating parties to maintain sound underwriting and loan management practices; (B) to develop credit mechanisms, including sound underwriting criteria, processing methods, and credit enhancements, through which resources of the Federal Housing Administration can assist in increasing multifamily housing lending as needed to meet the expected need in the United States ”

“ The Federal Housing Administration mortgages, which are a recent New Deal endeavor to make funds for home buying or building safe and stable, are issued by local banks with the payment of interest and principle guaranteed to the bank through the operation of this government controlled agency. ”

“ The aspiring homeowner no longer depends on the willingness of the local commercial bank or savings and loan association to hold his or her mortgage. Similarly, the sources of credit available to purchasers of cars and users of credit cards have expanded widely beyond local credit institutions. ”

“ And the reason that is the case is because, not only is there going to be better regulation, but there is going to be a lower cost of capital for those institutions.
The regulator must see the whole scope of risks in GSE housing finance to perform its duties well, including, if we go forward and we include the Federal Home Loan Banks, this is going to allow Congress to construct the proper foundation for this oversight. ”

“ Savings banks are unnecessary in communities where building associations are common. The savings bank will give place to the building association, for the reason that the latter affords greater security and more profit to the depositors at the same time that it affords greater conveniences to the borrowers. It is often asked by those not fully acquainted with building-association methods, “How is it that the association pays such large dividends, and the borrower such a small rate of interest? The profit is made by the loaning of money ”

“ In the words of the president, the main desire of building loan associations should be "the encouragement of the habit of saving without irritating penalties and restrictions and with equitable provision for the mishaps possible to those undertaking a contract for specific saving extending over a long period of years." ”

“ Whereas formerly the small home could be financed in the real estate market at an average rate of about six or seven per cent in New York City, to-day, according to the New York State Commission of Housing and Regional Planning, the capital used in tenements in New York State at present "costs on an average of from eight and one-half to ten per cent for interest without making allowance for the initial costs of securing a loan. ”

“ Before the first five houses were completed, and in the spring of 1903, the parties proceeded with the construction of another row of five houses under an arrangement similar to the former one, including a building loan to pay the cost of construction, the proceeds (over and above the amount necessary to procure the release from the deed of trust) being placed in Campbell's hands. ”

“ Such capital stock shall be held by said land bank as collateral security for the payment of said loan, but said association shall be paid any dividends accruing and payable on said capital stock while it is outstanding. Such stock may, in the discretion of the directors, and with the approval of the Farm Credit Administration, be paid off at par and retired, and it shall be so paid off and retired upon full patment of the mortgage loan. ”

“ At length a plot of land is let to a smart enterprising builder, highly recommended by his timber merchant; and to induce the builder to proceed ‘with spirit,’ and secure the ground rents, liberal cash advances from the fortunate proprietor are suggested, and eventually made. The ‘architect’ will certify the cost of building work to warrant each advance, and the solicitor will take the builder's equitable security, and his receipt; the fees remaining with the ‘architect’ and lawyer as before. The freeholder once more is good for all, but gets no gain. ”

“ This risk is unusually light, for the reason that in a well-managed building association there is little in sight to lose. The money is usually all invested. Any small amount in the hands of the officers is there for only a short time. There are demands in all well-managed building associations for all the money in hand. While this is true, it is always required that the officers who handle the association money give bond for a much larger sum than it is possible for them ever to have in charge. ”

“ This company, as consolidated, at once determined to raise a new loan of a million of dollars, to be used mainly for the purpose of building the Atchison Branch road, on which but little, if any, work had been done. As a security for the bonds of this loan, they made another mortgage, which was a first mortgage on the Atchison Branch, and a second mortgage on the main line. ”