950 READINGS IN RURAL ECONOMICS 



Rates may also be approximately estimated from the yield of 

 mortgage loans to investors. The usual rate offered to investors 

 by mortgage companies making loans in the Northwest is 6 per 

 cent, though the rate varies, according to the risk, from 5.5 per 

 cent to 7 per cent. In the South the usual rate is 7 per cent, 

 though some loans are made at 6 per cent. The commissions 

 charged by the companies vary, according to risk and competition, 

 from I per cent to 3 per cent. 



The president of a mortgage company located in the extreme 

 Northwest states that in order to cover expenses and make ade- 

 quate profits the mortgage company must have an annual margin 

 of at least 1.5 per cent above the rate quoted to the investor. In 

 other words, in that region the farmers who are more favorably 

 situated pay from 7 per cent to 7.5 per cent. The annual margin 

 on the less desirable loans is probably from 2 per cent to 3 per 

 cent, and the interest is from 8 per cent to 9.5 per cent. The 

 president of a company located in the Middle West states that its 

 mortgages net the investor from 5.5 per cent to 6 per cent, that 

 the cost of making the loan is -J^ per cent and that the additional 

 charge for profit makes the cost to the farmer from 7 per cent to 

 7.5 per cent. These figures are significant in connection with 

 the fact that the company has outstanding mortgages to the 

 amount of ;^ 15,000,000, and that it will not do business in a 

 community which does not annually furnish mortgage paper 

 amounting to ^200,000. 



The local middleman plays an important part in mortgage 

 loaning in the United States. While the better-organized mort- 

 gage companies urge the farmer to deal directly with them, he 

 nevertheless often pays a commission to a third party for telling 

 him where he may secure a loan, and in many parts of the 

 country there are middlemen who perform no other function. In 

 certain sections, however, the isolated position of the farmer, his 

 ignorance of business, his lack of system and his dependence on 

 outside capital make a middleman who is familiar with him and his 

 affairs a necessity. So varied are the conditions under which such 

 a middleman acts that it is practically impossible to generalize as 

 to the cost of his services ; but in most cases it is not exorbitant. 



