BUILDING AND LOAN ASSOCIA TIONS. I'rivate corporations designed to fur nish a safe means for the accumulation of sit V jugs, accompanied with an opportunity to secure money at reasonable rates for the purpose of building homes. The term is here used to cover a variety of organizations with similar purposes and methods of business, as mutual loan asso ciations, homestead aid associations. savings fund and loan associations, coiiperative banks, cnfiper ative savings and loan associations, building societies, etc. In great Britain the organizations exist under the latter title, while in Germany they are known as Baugenossenschaften. The first in England was organized in Birmingham in 1781. They became numerous during the Nine teenth Century, and acts were passed in 1838 and in 1874 regulating them.
The first association of this character in the United States was organized in Frankford. a sub tub of Philadelphia, in 1831, under the title of The Oxford Provident Building Association. Many were organized in the decade from to 1850, which may be considered as the real period of their inception in this country. According to the ninth report of the Commission of Labor, issued in 1893, there were at that time 5S3S building societies in the United States, of which 5598 were local and 240 were national organiza tions. Pennsylvania led the other States in the number of these organizations. having 1079; while Ohio followed with 721. The total amount paid in, plus the profits in all the associations, amounted to $450,667,594; but 35 of the asso ciations showed a loss at the close of the fiscal ?ea• amounting to $23,332.20.
When a man becomes a shareholder in a build ing and loan association, he pays a certain sun each month until the aggregate amount paid, increased by profits, equals the maturing value of the share, which is usually $200. If a man becomes the possessor of a share and pays $1 it month, it would require 200 months (16% years) to pay for the stock; in practice this time is very much shortened, as the money paid in is immediately loaned out, and members get the advantage of compound interest on all sums paid in. The capital of the association is thus made up of the sayings, and interest upon the savings. of its members. and is increased from IloOlth to month and from year to year. Pro visions are made in all associations for the with drawal of members before the shares mature. On this account, a share, before it matures, may be said to have two values—the holding and the withdrawal values. The former is the actual value at a particular time. The latter is fre quently much less than the actual value. All associations stipulate the conditions under which members may withdraw before their shares ma ture, and, while these conditions differ, they are of such a nature as to discourage severing con neetion with the association.
The second purpose of the associations is to en able people to borrow to build homes. For this
purpose provisions similar to the following are made: If a man owns a lot and desires to bor row $1000 to build a home, he must purchase five shares of stock at $200 each. If the stock sells above par, those borrowing must bid a premium, and the highest bidder receives the loan. He gives a mortgage on the lot and pays in monthly installments, which include principal and inter est, until the stock is paid for.
The building and loan associations in the Unit ed States are divided into the national and local associations. These differ mainly in the scope of their operations, as the methods of organiza tion and management of them are practically identical. The local association lindts its opera tions to a community. often a county, while the national association makes loans anywhere and sells shares to individuals regardless of resi dence. Both organizations are tinder the control of a president and board of directors; however, the secretary and the treasurer are usually the most important factors in their management. A property committee usually passes judgment on securities before money is loaned. Failures of the associations are due to inefficient manage ment and especially to granting loans without adequate security. Five States, New York, Massachusetts, New Jersey, Ohio. and Illinois, require these associations to make annual re turns, the same as is required of savings banks. In all the other States, no control whatsoever is exercised over them.
There can be no doubt that if people would save and place their money at interest. in savings banks until an adequate amount had been accu mulated to enable them to build, it would be much less expensive to secure homes in this way than by purchasing building and loan association stock. The way in which the borrowers in build ing and loan associations receive interest on all sums paid in blintl,s them to the real rate of interest they pay. The non-borrowers often re ceive It) per cent. interest and over on all sums invested, and the borrowers, as a class, most pay this. Few men of means would think of building from funds received from building and loan asso ciations. These associations have an advantage over savings banks in one respect—as the dues of members must be paid regularly, there is a con stant pressure to save. The educative influence is its most commendable feature. People are taught to save and become property-owners, and are interested in providing for the future, who otherwise would live a hand-to-mouth struggle for existence. Consult: How to Manage Building Associations (1S73) t Dexter. A Treat ise on Coiipvratirr and Loan Associations New York, ISO) ; Thompson. .t Treatise on Building Associations I 2.1 ed., Chicago. 1899) ; fecport of t'oumissio ur (Washington, 189:3).