TIONS, co-operative organizations, originally designed to aid their members in procuring homes, at the lowest cost, and on the easiest terms. Later developments gave them some of the functions of a bank for savings. The associations are a development, dating from 1831, when the Oxford Provident Building Association was organized in Frankford, a suburb of Philadelphia. The original associa tions proving successful, plans were gradually improved, until by 1850 they became an estab lished part of American institutions. They flourished especially in the Northwest, the resi dential portions of Saint Paul and Minneapolis being almost entirely built up under this sys tem. They have been operated under various titles, besides the above, as mutual loan asso ciations, home assistance associations, co-opera tive savings and loan associations and co operative banks, the latter title being popular in New England. These organizations have had exceptional development in England where single societies have founded and built up entire communities, familiar as "garden The basic plan of these associations is the issuing of stock, which is paid for in monthly instalments, and the loaning of the money thus raised to shareholders, borrowers paying twice as much per month as lenders. It has been common to give the shares a maturing value of $200 each on which the dues are $1 per month over the entire period during which they are accumulating their par value. These shares are issued in series, at stated intervals, and eaa series runs its separate course in maturing. Borrowers are required to hold at least that number of shares whose par value equals the principal of their loan. In addition to their monthly dues borrowers pay a monthly instal ment of interest on the loan, usually at the rate of 5 per cent per annum. When money is in brisk demand it is customary with most as sociations to offer the loan to the highest bidder. The amount of the premium thus bid is added to the principal of the loan, and the borrower is required to cover it with an equal value of shares on which he also pays dues as well as interest each month. The premium is thus matured at the same time as the loan. An alternate system provides that the competitive premium shall be a small additional payment each month with the dues.
Under such an arrangement an association received an average of $1.40 per month per share, and in the course of a little more than 11 years this was theoretically sufficient to bring the shares to par value. In practice, the shares would sometimes run out in 10 years, if pre miums on loans ran high, and sometimes 12 or more earswere required for shares to reach the value, if the association had passed through hard times. When the shares reached the $200, or other maturing value, the lenders received the full par value of their shares, on which they had paid in from $120 to $144 in cash, according to circumstances, and the loans of the borrowers were canceled as paid and their mortgages satisfied. The advantage of
issuing shares in series at intervals is that it enables outsiders to come in and take shares any time a new series is opened, or to purchase the most recent series, by paying the dues for the number of months such series has run.
The legislatures of the various States have made laws rendering easy the forming of these associations, because they have proven to be a good means of enabling wage workers to build and own their own homes. The parties inter ested manage their own affairs, and as the money is loaned out as fast as it comes in, there is seldom any loss by peculation. To il lustrate how these associations assist a man of small means to build and pay for a home, let us follow the system from his point of view. Suppose he has a lot of land, for which he has paid $400. He can subscribe for five shares of an association, of the par value of $200 each, paying therefor $5 per month. Every month, or every few months, there will be money to be loaned, and he attends the meetings, and when he thinks the premiums are low, he bids in a loan of $1,000. If the premium he bids is $100, he takes out another share and pays thereafter $6 a month in dues and $4.58 monthly in interest (assuming the rate to be 5 per cent). An appraisement committee of the association in spects the lot and the plans of the proposed house, and, if the entire loan is not above 75 per cent of the prospective value of the com pleted property, the loan is approved, and the borrower executes a mortgage to the associa tion. The money thus loaned for the building of a house does not pass into the hands of the borrower, but is paid directly by the associa tion to the builder as his work progresses. The -association will not have to pay over any of the loan until the house is half completed, and then only half of the loan (and perhaps 10 per cent less, if the contract is so drawn), and the remainder when the house is finished, after some months. In the meantime the borrower is paying interest upon the whole loan, and also upon the premium which he did not receive at all. It is by these small side profits that the shares of these associations are more quickly matured, and in this early maturing the borrow ing member shares equally with the lending member, the home being paid for that much sooner. In the case cited, the loan of $1,100 would be canceled with the maturing of the shares, and as the value of the six shares would be $1,200, the borrower would receive $100 in cash in addition.