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Real estate record and builders' guide: v. 20, no. 502: October 27, 1877

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Real Estate Record AND BUILDERS' GUIDE. YoL. liX.<^^M NEW YOEK, SATUEDAY, OCTOBEE 27, 1877. No. 502. Published Weekly by %^t %ml €nhk %mxts %^^atmimx, TERMS. ONE YEAR, in advance....$10.00. Communicafcions should be addressed to C. IV. SWEET, Nos. 345 AND 347 Broadway. MORTGAGE LOANS BY INSTITUTIONS. It requii-es no great stretch of memory to recall the period Avhen our monied institutions Avere the pride and glory of Ncav York, unrivalled for soundness,, strength and prudent management. There are types of this class stiU surviving in representative institutions, such as the Mutual Life, the Seaman's Savings, the Chemical Bank, the Eagle Fu'e and kindred institutions. It is foreign to our purpose to recount the deplorable condition in Avhich the later groAvth of such insti¬ tutions has noAv f^len. Their several careers threaten to become a lasting stigma upon our city's fame. There are desponding people Avho fancy that fatal bloAvs have been given to the popularity and perpetuity of the Life Insurance and Savings Bank systems—that the shock Avhich public confidence has of late received is irremedi¬ able and may lead to the total disuse of these principles of accumulation. We are not disposed to take any share in these gloomy forebodings. As every poison has its antidote, so even the gravest calamities evoke their proper remedies. Ifc is idle, in the midst of misfortunes, to seek out noAV expedients for accomplishing a given result. The principles of savings funds and life insurance represent the most beneficent and practicable gen¬ eralizations of civilized life, and the administer¬ ing of these principles by corporations is the most approved aud practical method. If other agencies are resorted to, such as the adoption of Postal Savings Banks, or any intrusion of the governmental function in conserving the people's earnings, new dangers would be presented, and a new set of experimental methods be subjected to trial. However we may vary the mechanism of administration, the ultimate safeguards of all such schemes must remain the same, to wit: the infusion of common honesty and the application of wise management. While we believe our fiduciary institutions are now passing through a severe and critical ordeal, we firmly believe, and shall cling to the hope that thorough purification will leave our best models unharmed and un¬ tainted, and, under fresh aims and impulses, that these institutions will go forward in a renewed career of usefulness and honor. It is certain that aUsuch candidates for public confidence in the future will be subjected to the most rigid scrutiny on the parfc of the public, and vriU have to undergo a degree of searching examinaiaon on the part of the Sfcate .such as has been unknoAvn in times past. . Thp comer-stone of public confi¬ dence must hereafter lae an honest, able and thorough supervisiou of these affairs by the public examiner. In the new era of public and private policy which seems, to be dawning upon us, we may expect the offices of Superintendent of Banking and Insurance to be real and exacting monitors over the custodians of the people's sav¬ ings. Having learned their past shortcomings and derelictions, we will be better able to judge of their future performances. Corporate investments in personal securities is a domain which we are compelled to leave entirely uncriticised; but, in the nature of the case, these securities should be of the highest order. The work of the State Examiner ought to be simple and easy in determining the value, merit and authenticity of such investments. We can imag¬ ine, however, how easUy he may be baflrled in scrutinizing the mortgage investments of these corporations, where the instruments relating to them disclose no other facts than the metes and bounds of the property mortgaged and the sum of the mortgage loan. The information by which their true merits are to be tested lies wholly out¬ side the instrument itself, and calls for a Avide range of information and a minute familiarity with the current values of real estate. It is plainly to be perceived that in this department an opportunity is afforded for covering up gross abuses of power, and a facility is ever present for a vidde range of delusion with regard to intrinsic mei-its and values. The value of properfcy is such a • pui-ely abstract thing, in a measure so arbi¬ trary, notional and capricious, that the most reckless lending pf money naight be plausibly justified by a tolerably shrewd adjustment of figures. Apart from reckless and injudicious loans heretofore made, there are not. wanting instances of actual official malfeasance wilfully committed in the lending of corporate, funds. Many of these cases have been paraded before the public in the daily press, and have become notori¬ ous as examples of improper administration. A familiar case is one where a prominent operator purchased land for $35,000 and induced the seller to convey it at; a fictitious purchase price of $100,000, on the strength of which expressed consideration a prominent institution was induced to lend $70,000 on the property—^just double the actual price paid. Upon the foreclosure of the mortgage, which quickly ensued, the property fell into the hands of the corporation, and the bonds which accompanied the mortgage proved to be worthless. The present value of the property represents only a small fraction of the real pur¬ chase price. Another institution has appeared in the courts a def endant in a suit brought to set aside mortgages of a large amount, on the ground of their being tainted with usury, the institution, as it is alleged, having openly and without any regard to legality or propriety deducted a bonus of ten per cent, from the face of the mortgage, a practice which, it is asserted, had long prevailed in this institution in the matter of making loans. The most flagrant case which these later tingies have developed of the misuse of corporate fu^ds is that of the North America Life. In connection Avith a prominent uptoAvn builder this institution became the projector and proprietor of vast building schemes. A lar^e share of its assets was invested in these ventures, which have proved so disastrous that scarcely fifty per cent. of the amount can now be realized, and the income obtainable from the buildings hardly exceeds two per cent. Only recently a case occurred of the forcible ejection of a loan broker from the office of an institution by one of its leading officials, on the ground that the broker had made corrupt proposals Avith reference to the lending of money, showing the impression which is abroad in the minds of some persons th.at money can be obtained from institutions by collusive and corrupt means. A vicious practice, too, has prevailed in the lending of corporate funds, of the employment by these institutions of special brokerage firms, through which all or nearly all of their loans are expected to pass and be negotiated—a marked partiality being given to the applications so presented. Doubtless such an arrangement might be carried out innocently and harmlessly, but it has an unpleasant fiavor, and where the fact- is knoAvn that such an arrangement exists, it will be hard to convince the outside public that such practice is entirely free from objectionable fea¬ tures. In the case of one particular institution now in bankruptcy, the method x>f managing their morgage loan business constitued a system of extortion and oppression toAvards mortgagors and aU applicants for funds. The full history of this scandalous intrigue has never been fully given to the public, though there are hundreds of citi¬ zens who, have suffered from the unlawful exactions and disgraceful practices of this par¬ ticular ring of confederates. We shall forbear further allusion to it at present, although the time may come when a complete and authorita¬ tive exposure may help to purify the .fiduciary atmosphere. Examples enough have been ad¬ duced, and there is no lack of others to prove that there has been a degree of uuAvisdom, laxity and downright criminality in the mortgage loans of institutions which call for public reprehension and tho initiation of measures calculated to pre¬ vent such transactions in future. In the aroused state of the public mind, it is njt likely that any -dereliction in the conduct of fiduciary institutions will be tolerated hereafter, but that every check and safeguard which can be thrown about the actions of their managers Avill be approved and welcomed by the public. The proposition is an intolerable one which we have heard advanced by some of these managers, that their institutions should be permitted to take part in speculative schemes calculated to uphold the interests and values of real estate, such as rapid transit, bridge and tunnel enterprises, and building loan affairs— in fact, in any project calculated to inflate the prices of New York property, holding that the vital interests of these institutions were bound up in the perpetuity of high rates for real estate. Such ideas represent the wide departure of the average financial manager from the strict line of sound practice. The lesson, must be emphasized and di'iven home to the corporate conscience to recognize: the duty and obligation to husband and presei"ve inviolably the great trusts com¬ mitted to corporate safe-keeping. Security, first, last and always, should be the watchword of these institutions.. Fortunately, the advantages-presented in our city for obtaining safemortgages, leave nb excuse to managers to wander from the beaten track of