Building and Loan Associations.pdf

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Part of The American Chamber of Commerce Journal

extracted text: 10 THE AMERICAN CHAMBER OF COMMERCE JOURNAL October, 1929 Building and Loan Associations This brief discussion will first take up certain obvious advantages of Manila as a building and loan center. The paramount advantage is the absence of booms and business depressions of devastating intensity; Manila grows rationally, constantly, increment upon real estate is assured. This growth, it is clear upon even the most cursory examination of the reasons for it, will persist indefinitely—until the city has a population of several millions. There will be bad times and good times, but not annihilating crises. Manila is the outlet of half the hinterland of the Philip pines, upon which, engaged in productive occu pations, is half the islands’ population. These 4-1/2 or 5 million people may be tenfold that number before Luzon shall be overcrowded. Their activities are most varied, even in agricul ture, and, at their prevailing standards of living, they never produce anything which does not yield them an instant and material profit. It is sometimes complained that commodity prices are low, and times are said to be bad; but even at such times there is a profit for the farmer, who in the Philippines is not given to going beyond his means—the sugar farmer excepted. Even if the future should bring times of per sonal peril to the provinces of Luzon, Manila, a place of consular residence entitled to interna tional protection, would be a refuge for the pur sued and would suffer nothing from the dis turbances. An expert, surely, called upon to pass upon Manila as a place for real estate in vestments, could not fail of rendering a most favorable report. Building and loan associa tions are authorized for the purpose of providing the poor with means of taking advantage of such conditions and utilizing their savings as a means of relieving themselves from poverty. Building and loan associations are incorporat ed associations of men and women authorized to charge high interest and exempted from income taxation for the mutual benefit of their members, who are of two classes—those who borrow and those who lend, both acting through the associa tion. As the profits are, when the law’s intent is followed, periodically distributed to all, the high interest is merely a compulsion to more rapid saving. The objective is the building of homes for the members who borrow, and the augmentation of the savings of those who lend. At the sam^ xime a borrower is a debtor to his association, he is, to the extent he meets his payments, equally a creditor. Building and loan associations accumulate the pittances of their members. Those who are merely saving, can save only a little each month, perhaps no more than a peso or two; and they are, even though they may have saved a sum of several thousand pesos, unable of themselves to effect a secure real estate mortgage. Besides, all the time they should be engaged in getting such a sum together, they could have from it no more than the prevailing savings-bank rates. By pooling, in building and loan associations, with others who are saving by pittances each month, they immediately have the advantage of the higher rate charged by the association for loans; that is, 3,000 or 5,000 saving members paying a peso each into the association each month, make it possible for the association im mediately to effect a sound real estate loan, the association attending to all the details, legal and administrative. When such members wish to withdraw, it is 'easy for the association to square off their ac count with the current collections from other members and new ones coming into the associa tion: under the Dayton plan, in wide vogqp in America, members pay in whatever they can at any time, and withdraw whatever they wish, even all that is due them, at any time. Our rules are somewhat more regulatory, but the investment is always safe. Incidentally, few building and loan associa tions whose operations are localized in a single community where the natural interest of every one will keep them under due surveillance, ever have failed; practically it is impossible for con servative associations to fail, even in cities where real estate is subject to material fluctuations of value. The loans are made upon appraised values, the mortgages, as soon as made, begin to be paid; and they are all bulked together in the assets of the association holding them, so that any loss suffered on some is made up from profits gained from others. This illustrates the This article on building and loan associations is prompted by the proposals from Earl B. Schwulst, banking-bureau director, to amend certain paragraphs of the corpora tion law in the division of it per taining to such associations. The zeal of Mr. Schwulst is commend able, his motives unquestioned. But it would be more important to impress the fact upon the public of these islands, particularly the residents of Manila, Iloilo. Cebu, Baguio and many provincial cen ters where the people would be greatly benefited by building and loan associations, that the Phil ippines now have one of the best laws governing building and loan associations to be four 1 anywhere. Our law on this subject was drafted by Luke E. Wright and Henry C. Ide, who came here as Commis sioners and left as Governors, and were both adept in the drafting of good laws and erudite in knowl edge of the law. Most defects of fundamental character probably lie elsewhere than in our building and loan law.—Ed. peculiar security offered the creditors, many mortgages instead of a few or only one; and be sides that, the constant employment of the money, putting it into new loans as fast as olcl ones are paid up. Those who save through the medium of a building and loan association are only able to save in pittances, from their periodical incomes— salaries, or wages. A goal of several thousand pesos, enough for a mortgage loan, would be too far off for them, it would be a fatal strain upon their frugality and they should never reach it; but a few pesos each month placed with the asso ciation is not beyond them, and they soon realize the advantages of living within their means and putting something aside regularly for the future. Their passbooks or stock certificates become sources of pride to them, and marks of their prestige among their fellows. (By the way, the passbook would be better than the stock certi ficate, as it would be more convenient to the bookkeeper and the stockholder). As with the saving member, a goal of a sum sufficient to secure a piece of ground and build a house on it is too far off to attract the borrow ing member, who can never hope to have more than a small fraction of the required sum at any one time. His income, salary or wages, is period ically received and must go for the most part to square up current family expenses. He can, however, manage to put aside a few pesos each month, and his loan is so arranged that such pit tances amortize, in a given period, the principal of the loan, the legal interest on it, and the other charge by way of premium. He is credited with interest upon all that he pays into the associa tion; after a time, when he faithfully keeps up his payments, he is able to go to a real estate mortgage company and effect a loan (paying off the balance due the association) at a much lower rate. He now has some acquaintance with the business of saving, and may be said to be well launched toward acquiring an unencumbered title to his home. He always has the option, of course, of keeping on with the association until his pittances pay him out of its debt, at which time his stock and its earnings cancel his loan. But he should always have the privilege of paying up and with drawing, particularly to secure better terms, at any time. The association, of course, has the advantage of foreclosure upon delinquent bor rowers without the usual formal foreclosure pro ceedings in court, in which case the delinquent borrower must be credited with all that is due him as a creditor of the association. (The pro posed amendments to our law would not be as liberal to borrowers as some laws in successful operation in the United States. There, indeed, it has been found that fines for delinquency are a nuisance; other lessons taught by experience have made the associations in most states more liberal toward debtor members than the law requires). Amendments to a good building and loan law ought to be undertaken cautiously, perhaps in the light of more experience than the Philippines have had with the few associations now operating here. The law often says the associations may do thus and so, not requiring that they must. It defines their maximum powers, and our law defines the associations as home-building organ izations. By extension, however, and no doubt in view of even greater abuses extant in these islands, even large loans of building and loan associations upon farms and plantations have not been corrected by our courts. The associa tion’s viewpoint on such a matter is one thing, the borrower’s wisdom another. Everyone knows, of course, that only two classes of farm ers in the Philippines have regular periodical incomes with which to meet the obligations of a loan from a building and loan association; for such loans are payable periodically, in the same manner as the capital is accumulated by the saving members and utilized by borrowing mem bers for building homes for themselves. The two classes of farmers referred to are the hemp planters and coconut growers, whose crops are continually ripening. Any other farmer, be coming indebted to a building and loan associa tion and being compelled to meet very material payments monthly—or, being delinquent, to have fines charged against him, increasing even the high interest he has agreed to pay—runs a peculiar risk with his land (which is his capital), which may be peremptorily seized by the asso ciation and, in the same manner, sold to satisfy the obligation. By the time this has happened, whatever the planter-debtor has coming to him on his stock by way of interest is offset by the fines and proceedings charges. Building and loan associations are not designed to meet the needs of planters for money; their field is the urban community; and in such a community any debtor of theirs, being hard-pressed, can usually make shift, among all the agencies avail able, at least to save all that he has put into the association—that is, all his payments together with his accrued earnings as a creditor. {Please turn to page 16, col. 3) THE AMERICAN CHAMBER OF COMMERCE JOURNAL October, 1929 What 100 Insurance Cards Show The reading of Middletown would suggest to ly Manilan the interesting possibilities in the juntless things still unknown about this city, nd about the Philippines, which it would be lore than worth while to find out. The book ; a scientific social survey of a typical middlé'est American industrial city built out of an ldtime county-seat and drawing its new popula;on directly from the surrounding farms. How ie 30,000 people of the new city get their living, ature, mate and spend their leisure hours is Id about with scientific preciseness and dechment. If such a survey should be attempted in Maila, it would show this town to be better off in >me respects than Middletown. Work, for one ■ing, is probably steadier here. For in Middlejvn the laying off of thousands of men at the ictories may occur at any time and does occur .requently. Wives of the men were questioned about their anxieties over this condition (and all others affecting their lives), and it came out shat as poverty approaches the families of work men life insurance is, with most of them, about the last thing given up. This is a severe test )f insurance, a practical one. It would be ineresting to learn how such things go in Manila. The wives of Middletown workmen cling to the ope of educating their children in order that °v shall have things easier than their parents, aid-up insurance is a means of doing this, ^ourse there are some Middletown families io will keep the family automobile and let the urance lapse, but they are a minority. In mila there is at least one large employer who 1 discharge an employe who tries to keep a car en his earnings are not enough for him to do but he doesn’t discipline them for taking out urance—a means of protection and of saving jney instead of an expensive pastime. II The first 100 cards in the files of a leading añila life-insurance agency were gone over, th the following results: The 100 cards pertained to the insurance of persons, 89 men and 15 women. Jf the women, 11 are independently insured 1 4 are jointly insured with their husbands, ise four insured with their husbands are sewives. The eleven independently insured •de a child of 6, a child of 10, one of 13 and of 14; the average age of the 11 is 19-1/11 and that of the 4 insured with their hus. is 29-1/2 years. The children are of 3 insured with a view to their education; f the best ways of utilizing life insurance is, it on the life of a child, to mature at the age for college and provide a periodical income during that period. Of the 89 men in the list, 12 are merchants, 13 are teachers, 6 are landlords, 15 are clerks, 5 are students, 8 are farmers, 3 are officials, 1 is a chemist, 1 is a soldier, 3 are sailors, 1 is a photo grapher, 1 is a treasurer, 2 are telegraphers, 1 is a musician, 1 is an accountant, 1 is a checker, 1 is a priest, 1 is a stenographer, 1 is a mechanic, 1 is an editor, two are telegraphers, 4 are chauf feurs, two are foremen, 1 is a banker, 1 is an electrician, and 1 is a shoemaker. Pl,500 each, 40 of Pl,000 each, 39 of P2,000 each, 9 of P3,000 each, 8 of P5,000 each, 1 of P4,000 and 1 of P10,000. All ages are as of the date when the insurance was taken out. The average age of the men especially, indicates that life insurance does not make an early appeal in the Philippines; or, if it does, thought of saving for it is put off for some reason, either because youth wishes to spend or because young men wait until their families are well started, or for something else. One man was insured at 54, for P2,000. The lowest age is 17, that of a student insured for Pl,000. Most of the cards, of course, pertain to Filipinos. Doesit take so long for young Filipino The Insular Life Assurance Co., Ltd MANILA, ow rates iberal conditions ocal investments oans on real estates repayable monthly instalments, at ow interest P. I. If a mindful man with a fixed salary dies, he will only leave a small saving to his family FOR ABOUT P31.00 ANNUALLY our company guarantees the payment of Pl,000 to your wife or sons in case of death, or to the insured himself if he survives the policy. Call or write for particulars to: HOME OFFICE 4th Floor, Filipinas Bldg. Plaza Moraga, Manila, P. I. P. O. Box 128 C. S. SALMON 3rd Floor, Gachés Bldg. Escolta cor. T. Pinpin 11 P. O. Box 734, Manila V. SINGSON ENCARNACION, President J. McMICKING, Manager The average age of the men is just under 31 years. They include no boys; the 100 cards disclosed no boy whose education is guaranteed by insurance, which may indicate, as several girls are insured, more parental anxiety in behalf of girls than of boys. The insurance in force on the 104 lives listed in the 100 cards totals P202.000 and therefore averages slightly below P2,000 per person. Embracing, as it does, 100 policies, four of them being joint policies, it includes 2 policies of he West Coast Life Insurance Company offers a full line of modern life insurance contracts designed to meet every need of business or personal protection For particulars and quotations consult the ?hilippine Branch Office West Coast Life Insurance Co. Pedler Building Manila, P. I. Telephone 2-36-74 fathers to get firmly enough established finan cially as the age at which they seem to take out life insurance would indicate? The taking out of any insurance whatever seems to be post poned for other things, and the policies finally taken seem to be small in nearly every case. In surance has had a remarkable growth in the Phil ippines, but it is obviously just well begun in a field that it will take a long time to exploit as tho roughly as sound social organization demands. BUILDING AND LOAN ASSOCIATIONS (Continued from page 10) The planter usually has no such recourse. Competition is a corrective influence upon the profligate practices of associations, those which are frugally conducted being soon able to pay the saving members higher earnings on their investments and to offer the borrowing members real estate loans at less heavy rates. Little reserve is necessary for a frugal association to maintain. This comes of the excellent credit such associations enjoy, because their loans, conservatively made originally, daily ^increase in value in two ways: (1) from the payments of the borrowing members, reducing the prin cipal at stake, and (2) from the increment on the real estate security. It is the law’s inten tion that the profits of the associations be period ically distributed, less a very nominal amount, to the saving and the borrowing members by whose efforts in conserving pittances from their salaries and wages it has been made. The life of these associations is limited to fifty years, and in winding them up there should be little more than the capital and current earnings to dis tribute—the net earnings of previous years having been frugally utilized when in the treas ury and periodically distributed to the members whom the law intends shall have them. The field for building and loan associations in the Philippines, and even in Manila, is by no means fully occupied, arid a better popular understanding of the manner in which these associations operate, according to law, is highly desirable. They do cities infinite good.—W. R. '^PONDING TO ADVERTISEMENTS PLEASE MENTION THE AMERICAN CHAMBER OF COMMERCE JOURNAL
Date: 1929
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