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REAL ESTATE
AND
(Copyright, 1917, by The Record and Guide Co.)
NEW YORK, AUGUST 18, 1917
PROPOSED MORATORIUM ON REALTY MORTGAGES
CAUSES DIFFERENCES OF OPINION
Loaning Institutions Oppose Senator Ottinger's Measure
THE question of placing a moratorium
on real estate mortgages for the
duration of the war, as proposed in a
measure suggested by Senator Ottinger,
is one which is causing much comment
and apprehension. Loaning institutions
are practically unanimous in declaring
against the moratorium. The position
taken is that there is no need for such a
measure, that conditions do not warrant
so drastic a step, and if the bill becomes
a law, confidence in realty will be shak¬
en, and untold harm will come to prop¬
erty owners.
It is necessary not only to keep the
confidence of the owner, and possible
purchaser of real estate, but the loan¬
ing institutions must be considered, for,
should they withdraw from the market,
even temporarily, financial ruin would
visit hundreds of people who, under nor¬
mal conditions, would be solvent.
In the case of exceedingly valuable
properties, where large loans are placed,
foreclosures are almost sure to be fatal.
This is true even in cases where the
equities are sufficient under normal con¬
ditions. But this situation has not
changed during the past few years, cer¬
tainly not since the war was declared.
There always has been more or less diffi¬
culty in placing large loans, for the mar¬
ket is limited, and were a few of the
loaning institutions to refuse to make
commitments, the market would become
stagnant and values would crumble.
Following are a number of interviews
from people identified with the mort¬
gage market as affecting real estate:
John M. Stoddard, of Stoddard &
Mark, attorneys, who are closely identi¬
fied with the real estate market, said:
"While I am not familiar with the de¬
tails of the proposed moratorium legis¬
lation, it seems to me that the necessity
or advisability of legislation of that
character is not apparent at the present
time. Business has been going along
since the declaration of war in April
much as it did before that date. There
has been no general calling of mort¬
gages or curtailment of other credits.
In those two respects the business situ¬
ation has been far better this summer
than it was in the autumn of 1914. Pres¬
ent conditions, in no way, justify ^
moratorium.
'*To impair, by legislation, the obliga¬
tions of contracts can never be justi¬
fiable, except possibly when a people
are in desperate straits so far as credits
are concerned. Since we are not in such
straits, a declaration of a moratorium
would mislead our enemies and serve to
hearten them. That alone is enough to
condemn the proposed enactment.
"Since there is nothing in the pres¬
ent business situation to warrant the
proposed extraordinary restraint, I as¬
sume that those favoring the legislation
have in mind the protection of mortgage
borrowers against proceedings at some
future time by mortgagees. No one can
foretell what the future has in store for
us; but it seems to me that if the time
ever comes when it will be advisable to
impose a legislative injunction against
collection of debts by mortgage creditors
from their debtors, there will be occa¬
sion for the same protection on behalf of
debtors of substantially every class as
was done in England. In other words,
there is not now, and nrobablv never
vi'ill be, a sound reason for singling out
r) NE of the most important
measures affecting real estate,
now up for consideration, is the
moratorium on real estate mort¬
gages. Conflicting opinions have
been expressed on the merits of
the proposed measure, therefore
the Record and Guide prints sev¬
eral interviews with men promin¬
ently identified with the realty
mortgage market. The loaning iti-
stitutions are practically unani¬
mous in opposing the proposed
legislation. It is conceded that
everything must be done to main¬
tain confidence in real estate as an
investment. Many consider that a
moratorium, becoming operative
at this time, would defeat the ends
for which it was designed.
mortgage lenders and enjoining them
alone from enforcing the fair written
contracts they hold.
"My own inclination is to view the
matter from the standpoint of the real
estate owner. While I perceive that
some temporary advantage may be ob¬
tained for such owner if, as his mort¬
gage matures, he may be protected
against reducing or replacing it, never¬
theless, in my opinion, such present ad¬
vantage will be greatly outweighed by
the damage which will result to real
estate values. The availability of prop¬
erty as security for loans is a large ele¬
ment in making its value. Any occur¬
rence which negatively affects such
availability in respect to a particular
species of property, depreciates its value.
"Some unfortunate conditions have
arisen within the past few years which
have tended to contract the amount of
available mortgage money to a point
much below the reasonable, legitimate
demand therefor. Anything which would
further diminish the attractiveness of
mortgage investments would be disas¬
trous to real estate values. I believe
that a moratorium in respect to mort¬
gages would produce that result. It
would be understood by the moneyed
man and moneyed institutions as the
adoption of a policy that, in times of
great stress, we will single out mort¬
gage investments and declare a mora¬
torium in respect to them.
"We may expect that, when that re¬
straint is placed upon mortgagees, they
will generally resolve to collect, as soon
as possible, all of their mortgages and
henceforth to select for their capital a
form of investment which is not likely to
be the special object of attack by the
Legislature.
"Above I characterized a moratorium
as impairing the obligations of a con¬
tract, for so it would seem to me to be.
If A borrows money from B, and prom¬
ises to repay it on a specified date, and
if in the meantime the State prescribes
that A need not so return the money,
or that B may not enforce collection of
it. I should say that the State is impair¬
ing the obligation of the parties' contract.
The Federal constitution expressly pro¬
hibits legislation of that character by
any of the States (Art. I, Sec. 10). Dur¬
ing the Civil War the Legislature of at
least one State attempted and purported
to legalize the suspension of specie pay¬
ments. The United States Supreme
Court, in treating of the matter (97 U.
S. 179), said:
It (the State) could not relieve them (the
debtors) from the obligation to pay their
debts in specie, nor extend the time for such
payment. It could not do this, because any
such law would impair the obligation of the
creditor's contract.
"It would seem to me therefore that
if the State of New York were to enact
a law directly decreeing a moratorium in
respect to any indebtedness, such enact¬
ment would be unconstitutional."
William E. Harmon said: "There can
be no division of opinion among sound
thinking legislators as to the disastrous
effect of a moratorium on mortgage pay¬
ments during the war. Practically speak¬
ing, it would be as disastrous for the
borrower as for the lender, although the
results in the latter case would not be so
immediate. Such a bill would come near
wrecking savings banks through a dis¬
trust in their solvency, the insurance
companies through the reduction in their
income, as well as constituting an un¬
merited hardship on a countless number
of individual mortgagees. The obliga¬
tion of the borrower would simply ac¬
cumulate, to be met after the war when
the security on which he procured his
loan would be greatly depreciated.
"From a large experience as mort¬
gagor and mortgagee, and as a director
in lending corporations, I can speak with
authority in saying that every considera¬
tion is extended to the borrower in these
times that is possible up to, and at times,
beyond the point of safety. Real estate
has already suffered severely in New
York through a mistaken notion of serv¬
ing the people, so that there is no State
in the Union where real property is
looked upon with greater distrust. If
the people of this country are to provide
an adequate financial support to the Gov¬
ernment, it can only be done by pro¬
tecting property to a reasonable degree,
exacting a share from unusual profits,
and conserving the elements of produc¬
tivity.
"The proposed moratorium has already)
made mortgagees uneasy, and if support¬
ed even in a moderate degree, will bring
ruin in its train. Mortgagees are pro¬
verbially a timid class, and the mortgage
market should be supported by the (Gov¬
ernment if the values of real estate are
to be maintained at their present level
for the next two or three years. It is
clearly a case of an attempt 'to kill the
goose that lavs the golden egg.'"
Nathan L. Ottinger: "There has been
a liquidating market in real estate since
1908, stopping, in my judgment, last
year. This change was occasioned
through the advance in rentals and the
decreased number of vacancies. These
conditions stopped the actual decline.
The law of supply and demand asserted
itself. Just as people get optimistic af¬
ter a prolonged rise, tliey become pes¬
simistic after a long decline. This is
specially true if they have suffered finan¬
cially. Many of our loaning institutions
have been obliged to foreclose mort¬
gages which frequently showed heavy
losses. To offset tliese losses payments
have been demanded on a large number
of mortgages. These institutions have
not followed the trend of the market,
which would show a better tone if pan¬
icky attitudes were not assumed. As all
arguments fall on deaf ears (that is the
ears of the appraisers) of these institu¬
tions, the only way to bring order out
of chaos is to have a moratorium to ap-
RBCORD AND GUIDB IS IX ITS FIFTIETH YEAR OF CONTINUOUS PUBLICATION.