Mortgages, Foreclosure

The G. L. Miller & Co. Inc., middleman for real estate mortgages, went into involuntary receivership at Manhattan last week. It has accepted mortgages against 150 structures in 58 cities and 16 states, and sold bonds against such mortgages to 25,000 customers.

Last July, certain directors of labor banks, and other shrewd men of no labor relations at all, took over this company with the ingenious intent of selling these real estate bonds to labor men (TIME, July 12). At the time the "success of such trading on reputation was doubtful."

On Aug. 6 the company defaulted a $50,000 interest item against a $1,425,000 mortgage. It had sold insufficient bonds.

Regarding bonds against other properties underwritten by the company, Receiver Lawrence Berenson said: "The intrinsic value of the bonds was not changed by the receivership and that the rights of the bondholders in the properties securing their bonds were the same as heretofore."

The lot of G. L. Miller & Co. Inc. is that of many building investors throughout the country. A man has an itch to build. He borrows $100,000 at 7% interest and, because his credit is insecure, he pays a 10% bonus. For the sake of $90,000--which is paid out to him as he must compensate the building trades--he pays $17,000 in interest for the first year. This is practically 19% on the $90,000 he actually gets. The second year, and thereafter, he pays $7,000 interest on the $90,000, or 7.7%. Then, when his building is completed and in rent, he is indeed fortunate if his entire income from it is sufficient to pay interest, tax, salary, and upkeep items.

Usually the income is insufficient. The ambitious builder is forced to construct anew to gain some funds which he may divert to pay defaults on the first building.

Then comes the sort of "ultimate day of reckoning" that has just led the Pennsylvania Bureau of Securities to forbid the G. L. Miller & Co. Inc. from doing further business in that state. A few days ago Ohio also revoked this concern's business license.

But all real estate bonds are by no means jeopardous investments. In fact, they should be the best of all securities, for they are backed by tangible buildings and real estate.

Thus, when officials of such bond houses learned of the G. L. Miller & Co., predicament, their officials hastened to declare: "The first mortgage real estate bond business is too large, too important and too well established to be affected by one house. During the last half century the first mortgage real estate bond business has been one of the, most important factors in the building of the United States, and we believe that this business is destined to play a still greater part in the future of the country."--Vice President Herbert S. Martin, S. W. Straus & Co.

"This should have no effect upon the major portion of the bondholders of the Miller firm. They have their bonds, the property is there and they should be perfectly secured."--Vice President C. C. Moore, American Bond & Mortgage Co.

"It should be realized, and it can't be too strongly impressed upon the public mind, that the higher the rates of interest offered the greater the risk involved."-- President William M. Greve, The Prudence Co.