Fancy Mortgages

For anyone except a builder, banker or realtor the National Housing Act of 1934 is dull reading indeed. Only section with which the public is by now thoroughly conversant is Title I, dealing with insured repair and remodeling loans. Yet with all the hullabaloo about fixing roofs and installing new bathrooms the Federal Housing Administration has insured only $150,000,000 worth of that type of building stimulus. More significant, though less publicized, is FHA insurance of straight long-term mortgages, which was one of several major New Deal attempts in the omnibus housing measure to crack open the frozen mortgage market.

Compared to an old-fashioned mortgage that was renewed in good times and foreclosed in bad, an FHA-insured mortgage is a very elaborate security. Contrary to popular notion, neither FHA nor any other Government agency lends the money. That is provided by the usual financial institutions--banks, insurance companies, building & loan associations. But, through its power to insure the loan, FHA regulates every phase of the transaction--term of the mortgage (up to 20 years), interest (5%), method of payment (monthly installments covering interest, amortization, taxes, insurance). Amortization must be adjusted to the mortgagor's income. There must be an FHA-approved servicing agent to distribute the monthly installments, including one-half of 1% to the Mutual Mortgage Insurance Fund. What really gives FHA insured mortgages distinction is that not only must the mortgagor and the servicing agent be approved but the mortgagee who puts up the funds must also pass muster. Having been passed, however, the mortgage-holder will be paid off in Government-guaranteed bonds if he ever has to foreclose.

Few months ago the New York Stock Exchange firm of Pask & Walbridge started to investigate the possibilities of acting as broker for FHA-approved mortgage-holders who wanted to sell. Pioneering, Pask & Walbridge last week tested its conclusions by publicly offering $1,250,000 of FHA-insured mortgages. In big blocks which were picked up in various States, they were priced to yield 4 1/2% to 5%. Though the market was confined to FHA-approved buyers, largely institutions, the firm reported the deal successful.

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