84 The Bulletin. 



is sold. If the property upon which a loan has been made decreases in value, 

 partial repayment of the loan is demanded. The surplus receipts of the asso- 

 ciation go into a reserve fund from which losses are made good. The admin- 

 istration of the affairs of the association is under the supervision of the Prus- 

 sian Minister of Agriculture, and under the special control of a Royal Commis- 

 sioner who is authorized at any time to inspect the books and fund, to attend 

 meetings, and to call meetings. 



The Credit Foncier de France, establislied to satisfy an imperative need, is 

 a limited liability company with a capital of 200,000,000 francs, operating 

 under the supervision of the State. In the beginning (1852), the Govern- 

 ment granted the Credit Foncier a subsidy of 10.000.000 francs in order to 

 help it make loans at a rate advantageous for that time. The subsidy was 

 not renewed, and the State does not interfere except occasionally to exercise 

 its control. The purposes of the Credit Foncier are: 



1. Lending money to landowners, counties, communes, and public services. 



2. To create and negotiate real estate bonds, or mortgage bonds to a value 

 which cannot exceed the amount of the sums due from its borrowers. 



The company is permitted to receive deposits, but the aggregate of the 

 deposits must not exceetl 100.000,000 francs. The funds received on deposit 

 are employed in discounting commercial bills on condition that they have two 

 signatures and do not run over three months* The shares of the Credit Fon- 

 cier, which are dealt in on the Bourse, are issued at 500 francs and any 

 one can own them. The stock now receives per cent dividends and sells 

 for about I'A) francs a share. The Government appoints the governor and 

 two sub-governors. There must also be three treasurers-general among the 

 twenty-three members of the council of administration. These treasurers, as 

 well as other administrators, are appointed by the general assembly of the 

 company. The general assembly represents all the stockholders, and is com- 

 posed of the 200 who own the largest amount of stock. 



The two principal kinds of oijcrations of the Creilit Foncier are mortgage 

 loans and communal loans. The total of these two kinds of operations now 

 amounts to more than 4,000,000.000 francs. So far as the possible adoption of 

 some of the methods of the Credit Foncier in the United States is concerned, 

 that part of its operation covering the making of loans to landowners is of 

 the greatest interest. Our municipalities now have a broad and steady market 

 for their securities. 



The Credit Foncier makes loans to landowners on the following terms : 



1. Short-time loans, without amortizations for a period of from one to 

 nine years. 



2. Long-time loans, with annual amortization, for a period of from ten to 

 seventy-hve years. 



The rate of interest on the loans is 4.30 per cent per annum, and the rate is 

 the same for all kinds of property. Loans are made only on first-mortgage se- 

 curity, and the amount of the loan cannot exceed one-half of the value of the 

 property, excejit that loans on wines and timber must not exceed one-third of 

 their value. When the loan is made for a short period, the borrower pays each 

 year only the amount of interest due, and the principal amount must be paid 

 in full at the end of the term of the loan — one to nine years. Long-time loans 

 are gradually paid by means of an annuity, which includes the interest and a 

 small fraction of the principal. As a rule, the borrower himself fixes the 

 length of time that the loan is to run. The amortization extends over the 

 whole period of the loan, so that the total of the interest and capital is repaid 

 from a constant yearly annuity. Consequently, the cost of amortization 

 depends on the length of the loan and on the rate of interest. On a loan 

 running for 75 years at 4.30 per cent interest, the annuity, including interest 

 and amortization, is at the rate of 4.4S per cent per annum. The borrower 

 has the right to pay the principal of the loan at any time, and to profit by the 

 amortization already made. He can also make partial payments and thereby 

 reduce the amount of the annuity. Tlie landowner who wishes to build can 

 obtain from the Sous Comptoir des Entrepreneus, a society connected with the 

 Credit Foncier, a mortgage credit based on the value of the land and of the 

 building to be erected. When the building is finished the credit can be con- 

 verted into a Credit Foncier loan. 



