Rehabilitated Guarantees

For years & years some 18 mortgage companies went blithely ahead guaranteeing the interest & principal of the mortgages they sold to the public until they had guaranteed 35% of all the mortgages in New York City. Of course they never dreamed that they would ever have to make good on any but a small fraction of this $3,000,000,000 contingent liability, but the worst happened. When Depression set in, mortgages defaulted, foreclosed property could not be sold and investors instead of buying new mortgages to replace the ones that matured, loudly demanded their money. By last February the guaranteed mortgage companies were in a terrible fix. What was worse, everybody knew it.

Manhattan bankers thereupon made a gesture toward solving the problem. Realty Stabilization Corp. was launched with $10,000,000 capital and $100,000,000 of R. F. C. credit. Maturing mortgages amounted to some $700.000,000. There was no conceivable method of making $1 do the work of $7, so after the March banking holiday Superintendent of Insurance Van Schaick clamped down restrictions which stopped the guaranteed mortgage business but which granted the companies a moratorium. They were ordered to submit plans for reorganization. Meantime they put on a campaign to obtain releases from their guarantees and the state formed New York Guaranteed Mortgage Protection Corp. When the companies' plans for reorganization were all rejected this quasi-public protective committee went to work. Last week its plans were published by Superintendent Van Schaick.

Of New York State's 51 guaranteed mortgage companies, 31 were allowed to resume business. They had succeeded in persuading holders of 35% of their mortgages to waive the guaranty, were thoroughly solvent. But their guaranteed mortgages amounted to only $126,000,000. The other 20 companies, with $2,900,000,000 of guarantees outstanding, were (or will be) taken over by Superintendent Van Schaick for rehabilitation. Biggest companies he took over last week were Bond & Mortgage Guarantee Co., Lawyers Mortgage Co. and New York Title & Mortgage. These three companies had assets of $144,000,000, liabilities of $1,724,000,000.

New operating companies will be formed but the stock will be held by Superintendent Van Schaick for the benefit of creditors. The old companies will be gradually liquidated. All mortgage companies were forbidden to guarantee the principal of mortgages. Henceforth they can only guarantee interest.

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