Staying Away From Building And Loan Association Shysters

by David Jenyns on February 15, 2008

This statement is made from a detailed knowledge of several building and loan associations and their operators. The Securities and Exchange Commission took action against them and found, among other things, that in the portfolio of mortgages of the associations there were 86 nonexistent mortgages. The broker got about as much interest out of the mortgages as the building and loan association; but, whereas the building and loan association had its money in the mortgages for a five year period or longer, the broker held the mortgages only long enough to sell them to the association.

If an uninsured building and loan association were picked out of the air by the investor without any investigation as to its soundness, a reasonable rate of return would be somewhere between 12 percent and 18 percent per annum, compounded monthly. Obviously no building and loan association pays such rates, and the very worst pay only 6 percent or thereabouts.

So, either examine fully and be sure of the financial soundness of the building and loan association in which you invest, or invest in a federally insured association. Any association handling second mortgages, particularly those on home improvements, can share the wealth a little and pay at least 8 percent to an investor, no matter how sound the association.

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