Challenger for FHA

For more than two decades, the Federal Housing Administration has been virtually the only insurer of home mortgage loans. Private institutions, recalling the failures of insurance companies during the Depression, made no move to challenge FHA's monopoly. Now the field has been invaded by Milwaukee's Mortgage Guaranty Insurance Corp., which is already insuring $2,000,000 worth of mortgages a month, hopes to have $500 million insured by the end of 1958. Last week Mortgage Guaranty got its third state license, in Minnesota (the other two: Wisconsin and Illinois); with other licenses applied for in 15 states, it hopes eventually to give FHA a nationwide run for its money.

The door to competition was opened for Mortgage Guaranty by the FHA's rigid interest rate, set by Congress at a maximum 5 1/4%. In the tight-money market, banks and lending institutions have increasingly passed up FHA-backed loans to get the higher interest rates on unguaranteed mortgages. This has made it harder for many would-be buyers who were not top credit risks to get mortgages. Milwaukee Real Estate Lawyer Max H. Karl, 47, and Real Estateman S. W. Kallas, who founded Mortgage Guaranty last April, thought that a private firm could fill the gap. Friends, relatives and clients put up $250,000, and Karl sold $500,000 in stock. Mortgage Guaranty soon signed up to guarantee mortgages for 30 savings and loan associations in the Milwaukee area.

The company insures only urban dwellings (farms are a bigger risk), deals mainly in 25-year mortgages with 20% down payment. It approves any interest rate agreeable to lender and borrower (though in practice the rate usually is 6%, and is often less), charges only about half FHA's 1/2% service rate, decides on a mortgage in about three days v. FHA's four to eight weeks. It allows the lender to cancel his mortgage insurance at any time without FHA's penalty. Unlike FHA, it waives all deficiency claims, i.e., claims for the balance of the mortgage after the foreclosed property has been sold. Says President Karl: "FHA has done wonderful things for housing. But in this prosperous economy of ours, it is time that private enterprise took business away from Government. We can do the same job or a better one more effectively."

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