Columbia University Libraries Digital Collections: The Real Estate Record

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832 RECORD AKD GUIDB December 18, 1920 railroads, the trolley lines, the public buildings, the telephones, the water supply, the sewerage systems; it is the poor and the people of moderate means whose savings are Invested in these enterprises. The insurance companies' investments belong to these in a mass. After referring to the importance and necessity of insurance companies making loans on policies and pointing out that the thirty-nine companies referred to had invested, at the end of 1919, more than $732,000,000 in notes and loans to policy hold¬ ers, or nearly 12 per cent, of the entire assets, Mr. Fiske took up the necessities of government as another principle on which investments should be made. He declared: At the end of 1919 the 39 companies owned nearly a billion and a quarter of Federal, State, County and Municipal bonds—nearly 20% of the entire amount of their assets. We were at war so short a time that tho recollection of everybody is very vivid as to the urgent necessity of borrowing money by the Federal Gov¬ ernment. Life insurance companies were the first to be appealed to and they were urged even to borrow money to invest in the Liberty and Victory loans. They responded nobly and owned over seven hundred millions of United States bonds at the end of 1919. In this case you will observe that what we have named as the primary principle of investment—to get as high a rate of interest as' possible from safe securities—was mofliflfled hy the other principle we have named. Some of the bonds bought carried interest down to the rate assumed in the calculation of premiums, and nearly all of the bonds subscribed left little excess interest for surplus. It seems to mo there should be another principle governing investments, namely public needs. It would seem to be selfish, and to be ignoring the fact that by reason of the large propor¬ tion of the population which is insured it owes a certain regard for the needs of the people as a whole for a management to be governed entirely by the rate of interest, or by the investments It prefers as in its experience it knows most about or is in a way associated with. In what channels can the management put its funds for public benefit provided these channels are safe? It would seem that insurance companies as a whole have consistently followed this principle. Take public transportation. If we go back over the financial history of the country we find that thirty or forty years ago what the country most needed was facility of communication. The linking together of far dis¬ tant communities; the opening up of the West to agriculture: the bringing of products to the seaboard, the furnishing of necessities from manufacturing centers to the farms, the devel¬ opment of mines and transportation of metals and coal, the building up of cities near the newly opened land, the consequent organization of commerce, all indicated the use of capital for building railroads and equipment. Taking up the subject of real estate mort.ca.ues, Mr. Fiske said; Next take the public need of cultivated farms and city dwell¬ ings, store houses, shops, office buildings. Mortgage loans have generally formed the largest percentage of life insurance In¬ vestments. Here is .a need which just at present attracts the most public attention. Criticism has been insistent that the companies have not done their duty. They have been blamed because of the shortage of liousing. It is unthinking criticism. It has even been claimed that mortgages should be. if not almost the sole, yet the very greatly predominating form of investment. This criticism overlooks several facts. First, investments must be to some extent liquid. One company was called upon to pay twenty-four millions of dollars in a year on influenza claims over and above its normal mortality—about 50%. Second. If all the companies undertook mortgage loans almost exclusively the rate of interest would fall to a point very detrimental to the interest of policy-holders. Third, if such a riile were established by statute the supply would exceed the demand and there would be a large amount of uninvested assets. And lastly, and as im¬ portant as any, and really fundamental, is the fact that tlie housing situation would have been just as bad if the policy now suggested had been the rule of the companies. During the war there was no unsatisfied demand for mortgage loans on good securities. Building stopped. Parenthetically we may remark if the rule desireii had been statutory the United States Govern¬ ment would liave been seriously hampered in the prosecution of the war by lack of funds, and the statutes probably would have been repealed. One reason building stopped was that there was no great demand and little capital which was available to back up the mortgage loans, which, of course, are only half the building costs. Besides which it will be remembered that the Federal Government put great restrictions on building con¬ struction, and that permits to build and even to make improve¬ ments or alterations in existing buildings had to be obtained. After the war. when real estate began to be active and it was realized that years of quiescence had caused a shortage of all kinds of buildings, several obstacles were found in the search for loans. The surtaxes on income caused estates and individuals to call existing mortgages for payment for the purpose of rein¬ vesting the funds in tax-exempt securities or those yielding a nigh return and to refuse to make new mortgage loans. Seekers for loans on new construction met with the competition of bor¬ rowers whose loans were called who were looking for new lenders. The high cost of labor and material has deterred builders, and on this high cost, the proportion heretofore re¬ garded as safe to loan has been diminished; because the mort¬ gages are permanent loans and the investor must look far ahead for ultimate real estate values when he determines how much to lend. It is significant, however, that the insurance company which IS the largest investor in New York City mortgages (the Metropolitan) has not refused here or elsewhere a single appli¬ cation with adequate security on housing enterprises, and has loaned this year, and agreed to loan on mortgages, eighty millions of dollars. Its loans and engagements of the year cover 107 apartments and 2,024 dwellings, accommodating 5,038 fami¬ lies, besides nine hotels. Of these, 620 loans are In New York city and 1,511 elsewhere. The dwellings are not expensive ones, the loans running from $2,000 to $5,000. The fact that it has refused none indicates that other companies and institutions must be lending. And can anybody say that the life insurance companies should be the only lenders on bond and mortgage? It is not their fault that the tax laws have cut out of the market the private Investor and the managers ot estates; nor that there are In the market huge amounts of tax-exempt Investments of $ local government bodies, safety of all the funds of life insurance companies would seem to call for diversity of investments within the limits of existing laws. And there is the matter of farm loans. Dwellers in cities have had direct benefit in the matter of lower food costs and would suffer if agricultural development were curtailed. The life companies are called upon for these loans and have over a billion dollars so Invested—15% ot their assets; although in this field they have to submit to the competition of the Federal Government, which exempts mortgages made under its system from taxation. The history of farm loans is very creditable to the life companies. As to the total mortgage investments, back in 1870 nearly 40% of the assets of the 39 companies was on bond and mort¬ gage; in 1875, 5S%; from 1S80 to 1895. about 40%, and last year they were over 30%. The end of this year will probably see this percentage increased; for the increase ot mortgage loans by the 39 companies in 1920 to the end of October amounts to $232,729,386.70, of which $151,348,902.23 were on farms, $78,875,- 359.47 in cities, and two and a half millions not separated in the figures furnished to us by the companies. Thus to-day the companies have the enormous sum of $2,082,836,848.46 invested on bond and mortgage, about equally divided between farms and cities, and have made commitments for many millions more—one company alone having promised nearly fifty millions in loans not yet closed. Now, during this period of expansion of mortgage loans by the life companies, the companies have put aside to a large extent offers of railroad bonds, equipment and public service securities all perfectly sound, which would have netted 6%, 7, 7>4, 8 and even higher rates of interest. Here again we observe the prin¬ ciple of obtaining the highest rate of interest consistent with soundness modified by the principle of meeting public necessi¬ ties. Mr. Fiske further declared it to be a false policy to unde: take to compel insurance companies to invest a fixed part their funds in localities where policy-holders reside. One state passed such a law, he said, and the consequence Was that the most important companies withdrew from the state and have never returned. Another consequence was the rise in the rate of interest on mortgages in the state because of the withdrawal of the company loans. Continuing, he said: The agitation for that kind of legislation has never ceased, and even in the enlightened State of New York something along that line has been proposed: as, tor instance, compelling loans on bond and mortgage in some proportion to the assets. Much can be forgiven people "who have the responsibility of meeting acute housing deficiency. But they must think things out. The fact is that the life insurance companies doing busi¬ ness in this state have about 60% of their New York reserves invested in New York real estate mortgages and real estate. Such a law passed In New York would lead to retaliatory legis¬ lation. The ultimate result would be the diminution instead of the increase ot mortgage loans in the state. The fact is that there is no obligation upon the companies to the various states in matter of investments. The right to do business is purchased by the payment of taxes and license fees and the subjection to state supervision. The obligation of the companies is to their policy-holders in their respective states. The way to conduct an insurance company is to meet the rea¬ sonable, intelligent, informed desires of its policy-holders. In regard to this subject, what is the real interest of the policy¬ holder? It is to get the best returns out of safe investments. Safety first, income next. Wherever the return are highest on sound securities there should the investment be made irrespec¬ tive of locality. But, given securities of equal value and return, it is right that policy-holders should have their localities benefited. This Is, I think, according to the investment plan of the companies. It is dictated by self-interest. Any attempt to dictate by legislation is sure to defeat its object. "What the companies have done." Mr. Fiske added, "has l>een to invest their funds throughout the country where funds were needed, as indicated in part by the rate of interest obtainable. Two things were accomplished thereby which benefit policy-holders: First, a better rate of interest was obtained, and second, the partially undeveloped parts of the country were helped along in their progress." APPLICATIION has been made to the Board of Esti¬ mate by John H. Delaney, Transit Construction Com¬ missioner, for an issue of city bonds of $25,901,000 to carry on construction upon the city owned rapid transit lines next year. The application was referred to the Committee on Finance and Budget. Commissioner Delaney asked the board to set aside $11,- 053,500 for construction on routes operated by the Inter¬ borough Rapid Transit Company under terms of Contract No. 3, and $14,103,500 for work on the lines of the New York Municipal Railway, a subsidiary of the Brooklyn Rapid Tran¬ sit Company, under Contract No. 4. He also asked an allow¬ ance of $825,000 for additions to the original subway, operated by the Interborough. According to the schedules filed by Commissioner Delaney the work to be done on Interborough lines includes the exten¬ sion of the so-called Steinway tunnel route from Queens, which now ends at Lexington avenue and Forty-second street, to Forty-first street west of Seventh avenue.