the rate of interest on good loans to between 4 per cent. and 4 per cent. It is now over a century and a quarter since Büring handed to King Frederick his proposal "for making a part of the real estate of the country current "; and, while all attempts to base money on land have failed, this proposal, which resulted in the establishment of associations for the issue of long-term listed bonds based on land, is the origin of all modern methods of organized mortgage banking as it is now carried on on the Continent of Europe. Whether the German credit associations could be advantageously imitated in America may perhaps be doubted. The German mortgage banks probably present a better pattern. It is true that the unlimited mutual responsibility has had no bad results in Germany, even in the associations of large cities, where the members can neither all know one another nor all the properties pledged; but in a new country this feature might not be desirable. With only a limited mutual responsibility, however, it would seem as if borrowers in districts now suffering for want of mortgage credit could form associations to good advantage; and, if a large number of property owners were to associate themselves, each one mortgaging his land, for instance, for 20 per cent. more than the amount of cash he was to receive, the operation would be likely to be a successful one. 1894. See "Mortgage Banking in America," Journal of Political Economy, March, I will specify no localities, but only say that there are places where no organized mortgage banking has ever been done where the interest is from 8 per cent. to 10 per cent, and over, and other places where, a few years ago, small mortgage companies were loaning money, but have now suspended operations for want of capital, where it is to-day extremely difficult to borrow money even on the best of real estate security. II. What the credit associations did for North Germany was done for South Germany by the mortgage banks. These are the outcome of a gradual development during the first half of this century. The credit associations had shown that safe bonds could be based on land; but it was not until after the final abolition of feudalism and the rise of German commerce and German cities, due to the Zollverein, that the mortgage banks came to be of consequence. The liberation of the serfs began with the abolition of personal services as distinguished from such labor on the manor as was incidental to the rented land itself. This personal liberation took place at different intervals, commencing with the edicts of 1806, 1810, and 1811 in Prussia; and the entire dissolution of the relation between the landlords and tenants of Prussia followed under the edicts of 1816 and 1821. Here the peasants were simply enabled to purchase the land, paying in cash or in instalments, or to divide it with the landlord,* no funds being provided by the state for this purpose until 1850. But in South Germany government banks, or Tilgungskassen, were at once founded to provide funds for the redemption of the land from feudal dues and tithes. This took place in Sachsen and Kurhesse in 1832; Baden, 1833; Paderborn, 1834; Hesse, 1835; in Hanover in 1841; and in Bavaria and in Würtemberg in 1848. The banks then founded issued bonds drawing from 4 to 4 per cent. interest, and from sixteen to twenty times the annual rent was given in bonds to the landlords, the peasants paying from 5 to 5 per cent. to the banks to cover expenses;† and, usually, the government banks founded for this purpose have come later into a general mortgage loan business. The Renten banks of Prussia founded, one in each province, also for the purpose of redeeming the land, are not, however, The lands of the smaller tenant were, however, in Prussia simply confiscated by the landlords. ↑ Jäger, Die Agrarfrage der Gegenwart (Berlin, 1882), vol. ii. pp. 36 et seq.; Miaskowski, Die Organisation des ländlichen Kredits (Berlin, 1889) (in Agrarpolitische Zeit und Streitfragen); G. F. Knapp, article "Bauernbefreiung," and Conrad, article "Rentenbanken," in Handwörterbuch der Staatswissenschaften; Buchenberger, Agrarwesen, pp. 115 and 150 et seq.; Josseau, p. 365. doing a general mortgage loan business. They issued two kinds of 4 per cent. bonds for twenty times the annual dues, which are redeemed by drawings at the rate of respectively 1 per cent. or per cent. in forty-one or fifty-six years. Out of a total of 484,777, 560 marks there were still 331,166,355 outstanding in 1892. These bonds are guaranteed by the government, and the interest is collected from the former tenants as other taxes.* And it seems as if these Renten banks may become of further importance, as they are now furnishing money for the colonization business of the Prussian government in the Polish provinces under laws of 1890 and 1892. They lend to colonists on behalf of the government, in long term annuity loans, over two-thirds the value of the land and new improvements, and had in the course of the first months of this activity issued over one-half million marks of bonds to make loans on 572 new farms.† Aside from the Prussian Renten banks, there are, including the Tilgungskassen already mentioned, fourteen official government mortgage banks in different principalities of Germany proper. They had, according to Hecht, in 1889 loans outstanding for the aggregate amount of 433,879,540 marks and 418,881,483 marks of bonds, redeemable partly on demand, partly by drawings. Besides these there are in Germany several government concerns making loans for improvements, drainage, irrigation, and the like, one of which in Saxony has outstanding 8,813 loans, amounting to 15,345,939 marks. And the Prussian minister of agriculture has similarly loaned a few million marks for the purpose of such improvements. But of greater interest and importance than the government concerns are the private mortgage banks, whose methods I shall presently describe. The earliest of these, the small Ritterschaftliche Privat Bank of Stettin of 1824 and the large Bayerische Hypotheken und Wechselbank of 1835, did not issue bonds, but obtained the right to issue notes on condition of loaning a specified amount on mortgage. In 1847 was *Conrad, article "Rentenbanken," in Handwörterbuch der Staatswissenschaften; Meintzen, vol. iii. pp. 119-122. † Sering, in Conrad's Handwörterbuch, article " Rentengüter." The latter, 12,000,000 thalers at 4 per cent. Felix Hecht, article "Hypothekenaktienbanken" in Conrad's Handwörterbuch. For the former see R. Zeulmann, as above, p. 112. founded, however, the Anhalt-Dessauische Landesbank; and subsequently, in 1855, after the formation of the French Crédit Foncier of 1852, the Bayerische Hypotheken und Wechselbank began issuing bonds. In 1859 was founded a mortgage insurance company, in 1862 were founded three banks, in 1863 one, in 1864 one, in 1866 one, in 1867 two, in 1868 one, in 1870 one, the Preussische Central Bodenkredit Bank, and in the years following the payment of the French indemnity a number of others. There are now over thirty such banks in successful operation, and the table on page 64 shows some of the principal items of twenty-eight of these at the end of 1893. To a person not familiar with the mortgage loan business a brief definition of the business of these banks would be to say that they buy from borrowers real estate annuities for a specified number of years, and sell to capitalists bonds redeemable by drawings. Loans for a term of years are also sometimes made, as in the United States, on which no amortization instalments are paid. Annuity loans are the rule, however, the annual sinking fund contributions of the borrowers ranging from of 1 per cent. upward, and the time in which the loan is thus repaid varying from forty-two to fifty-seven years. The bonds are withdrawn at the same rate, a certain amount of bonds being selected by lot for redemption every year. The Prussian banks must not make this annual annuity instalment less than per cent. Some banks issue bonds that can be paid at any time, on giving notice of six months or less, the effect of which is that these bonds can never rise far above par. By far the greater amount of bonds are, however, unkündbar, and cannot be withdrawn except as originally provided. If the loans securing such bonds are repaid, the proceeds are reinvested in similar mortgages, which are substituted. Some banks have the right to redeem their bonds at any time, at a certain rate, varying from 105 per cent. to 125 per cent.; and in some cases all the bonds are redeemable at a premium when drawn for redemption, such bonds ranging as a matter of course, usu *Compiled for the Frankfurter Handelsblatt. See Frankfurter Zeitung, July 16, 1894. Sums expressed in marks, millions and tenths of millions. (See following page.) |