This semi-annual retirement and payment of its own debentures and interest coupons, or the acquisition of the same by purchase in open market or through borrowers tending them for their dues, are the only lawful uses that a landschaft may make of its sinking fund. This fund cannot be reinvested in mort gages. If it should become impaired, the landschaft may levy assessments on all bor rowers in proportion to the unpaid principal of their loans, in order to make good the de ficiency. Hence, since the borrowers are thus collectively liable on the debentures, they are mutually responsible by one another's defaults; and this continues for two years after mem bership ceases. In most of the landschafts the liability is unlimited, but in a few others it is limited to some percentage or multiple of the mortgage. The landschafts are not profit making. Their sole object is to exchange their debentures for the less salable note of the borrower, and so enable him to obtain a loan at a lower rate and on easier terms than he could get through his own unaided credit. Operating in this way, the landschafts have need of no other money than what they re ceive from the borrowers for paying running expenses and interest and for redeeming the debentures. Consequently their only funds are the sinking fund and perhaps a small reserve to and against contingencies.
Private institutions are those that are owned, financed and managed entirely by indi viduals without any assistance or intervention of government, except official supervision. With a few exceptions, they are authorized under general laws and not by special acts. There are three kinds: Companies for insur ing or guaranteeing titles or mortgages, bond and mortgage companies, and building and loan associations. The first kind, when they confine their business to their distinctive ob ject, serve rather to expedite than to extend credit. When they extend credit, they follow the methods of other private institutions, and so will not be treated separately. Bond and mortgage companies have fixed capital stocks divided into shares, usually paid in.
The various laws of bond and mortgage companies differ widely in detail and at im portant points, but their first model was the French legislation of 1852, which contains two master elapses. These are capital stock and surplus mist be maintained at a safe ratio to bonds or debentures; and bonds or debentures in circulation must represent first liens on real estate of adequate value and never exceed outstanding loans in either amount TAtez Too is 'never more than 1 to $20. A ,part of the capital or al of an obligatory reserve is set aside as a guaranty fund and kept in liquid investments. The reserve is created out of a portion of the annual earnings.. With this ex
ception, a company may invest all its assets, regardless of source, in mortgages and dis tribute all its profits among shareholders, There is no limit for dividends since the aim profit. A maximum is sometimes pre scribed for capital stock, so as to prevent monopoly,. but inasmuch as the capital stock serves not only as a working-fund, but also as a guaranty-fund and must be maintained at the statutory ratio 'to bonds dr debentures, its amount may be increased upon' approval or order of the supervising authority.
Generally the companies may extend credit to any.• clash of landeiwaers or pn any kind of land designated by the charter• or by-laws. The loans may be made for long term payable by annuities, or for short term payable by instalments or in lump, but rarely on the sink. ing-fund plan. The longest term in France is 75 years. The mortgaged. property must have a value 40 or 50 per cent greater than the sum lent upon it and be capable of yielding a dur able and certain revenue, which, in the case of long-term loans, must at least equal the bor rower's annual dues. If there be a maximum for amount of the loan„ it is usually one-tenth of the capital stock. The interest rate must not exceed that borne by the latest issue of bonds or debentures, plus an addition usually limited to one per cent more for costs and profits. Payments on loans are made annually or semi-annually. Perishable parts of the mortgaged property must be insured. The bonds or debentures are issued in series, with dates fixed for. payment of principal and in terest, but with a provision under which they may be recalled before maturity at a premium; in France prizes are lawful at their redemp tion. That country also has provided for licensed land-credit companies a special pro cedure for examining titles.
A building and loan association is an in corporated body with a variable capital; that is to say, a capital which may be increased or decreased by the issuing or canceling of shares, or by payments or withdrawal of payments on such shares. There may be any number of members above the minimum fixed for incor poration. According to the original design, the area of an association was delimited by a radius of a few miles from headquarters, so as to make all operations local. Its powers are to receive members' savings to lend to members for building or acquiring homes. These features stimulate thrift, and for this reason tax exemptions are accorded. The ad ministration consists entirely of members elected by members, the funds all come from members and the facilities are available for members only. The association is, therefore, co-operative.