Columbia University Libraries Digital Collections: The Real Estate Record

Real estate record and builders' guide: v. 18, no. 450: October 28, 1876

Text version:

Real Estate Record AND BUILDERS' GUIDE. Vol. XVIII. NEW YORK, SATURDAY, OCTOBER 28, 1876. No. 450 Published Weekly by Cfje §leal Estate ^etorlr S^ssomtmn;. TERMS. ONE YEAR, in advance.. ..$10.00. Communications should be addressed to C. W. SWEET, Nos. 345 AND 347 Broadway. THE MORTGAGE LOAN MAEKET. This market presents peculiar and inter¬ esting features at the present time, and re¬ flects with singular accuracy the condition of the real estate market, of which, indeed, it is the true mh-ror. Among some of our readers it may excite surprise that there is any money at all offering for loans on bond and mortgage, in view of the recent heavy defaidts in existing mortgages, the incessant foreclosures and the unvarying results of referees sales, namely: that the mortgagees are compelled, in the absence of other pur¬ chasers, to buy in the property. It may sur¬ prise such persons stUl more to learn that the amount of money offering on mortgage loans exceeds any within the whole range of our experience, and that the situation in this particu^lar market is fairly expressed when vs^e say there is more difficulty in finding ac¬ ceptable applications than in finding acces¬ sible funds. An examination of the list of foreclosure suits will develope the fact that very few of the conservative and sound lend¬ ers of money figure as plaintiffs in these actions of foreclosure. On the contrary, the experience is widespread and almost univer¬ sal, among this class of lenders, that not only the interest on existing loans but the princi¬ pal sums of the same, as they have matured during the present re"vulsion, have been met with most satisfactory promptness. The healthy financial condition of the great mass of borrowers on bond and mortgage has been tested in many instances which have come to our personal knowledge, where mortgages have been reduced in amount upon requi¬ sition, and others have been paid off entirely. The defaulting mortgages wUl be found to appertain chiefly to speculative, unproductive property, which had been enormously infla¬ ted, and to that class of speculative improved property where the improvements were made almost wholly out of the mortgage loans. We recur to this subject with increasing sat¬ isfaction, and take pride in reiterating the statement that the well-selected mortgage loans which were made during the past ten years have borne the brunt of the present re"vulsion with a strength that seems almost invulnerable, and which entitles them to rank among the highest classes of invest¬ ments, as, indeed, they have always been re¬ garded by our ablest fina^piers. In the absence of any current demand for real estate, whereby its values might be plainly defined and articulated, the matter of the determination of real values has de¬ volved almost entirely upon the lenders on mortgage. Accordingly, we find that in their hands real estate values are to-day un¬ dergoing a process of sifting and winnowing which wiU prepare the way for a re-estab¬ lishment of stable and reliable prices. It may seem strange, where only the fractional amount of the supposed value is to be loaned upon property, that the lenders should be exacting and circumspect with reference to those values. At a superficial glance, "we would naturaUy suppose that the smallest discount from eixisting values would furnish sufficient margin for a lender's security. The margin usuaUy expected varies from thirty to sixty per cent., and this precaution on their part is readUy accounted for when we remember that they proclaim themselves at the start as satisfied with the bare rate of interest agreed upon, and participate in none of the speculative results growing out of the transaction. When we consider that in this margin, which they demand, allowance is made for aU further possible downward fluc¬ tuations, as weU as for the probable arrears of interest, taxes, assessments and the costs of foreclosure, we vi'iU readUy recognize its propriety and necessity. With the question of market values left exclusively in the hands of lenders, thus constituting them the sole umpires of standard rates, it is interesting to study the various opinions entertained by them with respect to the present and pro¬ spective values of city property as expressed in the various loans which are made from week to week, and duly recorded in our col¬ umns. We propose to review this market from the several standpoints thus presented. The EXTREME RIGHT WING of the market is occupied by a class of lenders w^ho are pri¬ marily intent upon security for their capital. The question of income concerns them less than to know that the amount they invest is safe beyond all peradventure or doubt. Ob¬ viously such parties have long since aban¬ doned aU hope of deriving seven per cent., with adequate security, from their invest¬ ments. They would be weU contented with a return of six per cent., if at such a rate they could secure loans that would conform to their arbitrary and difficult standard. These men are probably pessimists by nature, and think they foresee National Bank panics. Life Insurance and Savings Bank-panics with -widespread mercantUe disaster, aU fol¬ lowing in the wake of the threatened and fast approaching resumption of specie pay- ineiits. The objectiy^e poiijt, which they hold in view, is to tide over these possible catas¬ trophes without paying tribute out of their capital. Since these gentlemen fail to he suited with current six per cent, obligations, we can only tender them this honest advice: to offer their funds at five per cent., and thus evoke a class of loans such as exist in our city and may be called in technical phrase " double gilt edge.." These loans would rep¬ resent about twenty-five or thirty per cent, of the arbitrary values of to-day, and may be regarded as thoroughly bomb-proof to all disasters. We are aware, from our acquaint¬ ance with this market, that there is a class of borrowers ready to conform in all respects to the standard of requirements thus set forth, but they expect as an equivalent to pay no more than five per cent, for their loans. We leave these two fastidious classes to adjust their mutual relations, and commend them each to the other, as weU deserving of mutual consideration. The EXTREME LEFT WING of the market em¬ braces that class of lenders whose motto is "Seven per cent., first, last and forever." In other words, there is a class existing in this city of hidebound and benighted indi¬ viduals who regard seven per cent, as the minimum value of money under aU circum-. stances, and resent the suggestion of any lower rate as an insult to capital and a men¬ ace and oppression to the monied classes. Many of these individuals have held their funds on deposit in Trust Companies, draw¬ ing 'from one to two per cent, interest per annum, waiting for the return of those hal¬ cyon days, which they devoutly pray for, when money commanded not only seven per cent., but in addition thereto a tempting, though illegal, bonus. The task of stUting the mortgage loan market, undertaken by this set of financiers, has been an onerous and costly one, having already resulted in a hea-vy loss of interest, as it wiU doubtless continue to do, judging from present appear¬ ances. Among this class, we regret to say, are embraced aU the leading Savings Banks and Life Insurance Companies of our citj'. In fact, it is an open secret in the market that nearly the whole of these institutions have combined to resist any abatement of interest from seven per cent., on the ground that such reduction would seriously cripple their incpme and resources, reverse the order of their business, and leave them' in an utter¬ ly impoverished condition. When applica¬ tion is made to them by parties whose mort¬ gages they now hold at seven per cent, for a reduction of tfie rate, the answer is prompt and ready, that if'one-half of the existing loan is paid off, the rate of interest on the balance will then be reduced. In the majors