HOUSE PURCHASE DEPARTMENT:
ADMINISTRATION & POLICY
(continued)
Bank Committee: March 18th 1935
5380 The following report of the House Purchase Sub-Committee was presented:
House Purchase Facilities.
I. General Procedure.
Your Sub-Committee have considered a report by the General Manager relative to procedure in making advances with or without collateral security.
It will be remembered that your Committee at their meeting on the 15th October, 1934, decided to modify the requirements of the House Purchase Booklet on the subject in the following particulars, ie:
That where the builder was satisfactory to the Bank's Valuer and a deposit of not less than 10% was being paid, and the standing of the applicant was also satisfactory, the collateral security should be equal to the difference between 90% of the purchase price and 90% of the valuation. It was to be understood that, in the absence of special circumstances, any such advances should be for a term not exceeding 20 years, the repayments to be made by fixed monthly instalments of principal, with reducing interest charge; any exceptional cases involving a longer period of years or different method of repayments, to be decided on their merits.
Your Sub-Committee would, however, point out that, because of the uncertainty implied by the restrictions, business is not being secured by the Bank. To clarify the position and avoid unnecessary conditions, therefore, your Committee are recommended to instruct as follows:
(a)
Advances up to 90% of valuation may be arranged without collateral security, provided the Bank is satisfied with the applicant.
(b) Providing the Bank is satisfied with the applicant, advances up to 90% of the purchase price may be arranged on collateral security equal to the difference between 90% of the valuation and 90% of the purchase price being deposited, such collateral security to remain until the mortgage stands at 80% of the valuation.
(c) Advances of a higher amount than 90% of the purchase price may be treated as special cases and determined on their merits by the Chairman of your Committee or the Chairman of the House Purchase Sub-Committee, their action being confirmed at the next meeting of the House Purchase Sub-Committee.
(d) The maximum loan period of 25 years to be at the option of the applicant in all approved cases.
(e) The choice of method of repayment to be at the discretion of the applicant in all approved cases.
Your Sub-Committee consider, however, that as an additional safeguard to the Bank, the builder should be under an obligation in cases (b) and (c) above mentioned to take over a property in case of default occurring within a minimum period of three years from the date of the mortgage, any variation of this condition to be subject to the approval of your Chairman or the Chairman of this Sub-Committee.
II. Publicity and Propaganda.
With a view to making house purchase facilities more widely known and procuring fresh business, the General Manager has temporarily withdrawn two officers, Messrs A J Smith and W L Hannah from their ordinary duties, so that they may devote themselves to this work. In addition to getting into personal touch with builders on the various housing sites and meeting prospective customers, it is proposed that they arrange meetings in connection with clubs, associations, societies, etc, when the various schemes could be explained by members of the Committee and other members of the Council, who would, no doubt, be prepared to help in a "house purchase push".
The General Manager has also caused every member of the Bank Staff to be interviewed and has impressed upon them the importance of according house purchase business, and your Sub-Committee have considered suggestions put forward by the General Manager, as a result of which they recommend as follows:
(a) That, if possible, arrangements be made with the London Assurance Company for combined house purchase and endowment assurance in respect of municipal employees, on the reduced yearly premium terms offered to members of the Municipal Officers' Guild; subject to Messrs Sedgwick, Collins & Co Ltd as advisers to the Bank, raising no objection.
(b) That an advertisement be issued in "The Guildsman", the organ of the Birmingham Municipal Officers' Guild.
(c) That personal visits be made by members of the staff to applicants for house purchase whose applicants have not been proceeded with during past years, drawing attention to the new schemes, in the hope of mortgages being entered into.
III. Co-operation with Builders.
Arrangements have been made for builders to be personally interviewed, either by the Chairman of this Sub-Committee, with the General Manager, with the object of discussing the facilities the Bank offer. Several interviews have already taken place as a result of which it is hoped that business will be obtained.
IV.Sale of Municipal Houses.
Your Committee are reminded that in 1933, the question of the preparation of a scheme for the sale of municipal houses to existing tenants was under consideration by the Estates Department, and the matter was discussed by the General Manager of the Bank and Mr Wallace Smith; but at that time it was not possible to arrive at figures which would be sufficiently attractive to encourage such sales. The question has now been revived in view of the reduced rate of interest now in operation, and with the object of an attractive scheme being prepared, your Sub-Committee recommend that loans spread over 30 years might be arranged, and thus bring the repayment figure down to a favourable comparison with the existing rent.
The General Manager has accordingly been directed to discuss such a scheme with the City Treasurer and the General Manager of the Estates Department.
V. Arrear Cases.
With a view to avoiding delay in dealing with mortgagors whose accounts are in arrear and the amount outstanding represents more than 80% of the valuation, it is recommended that the General Manager be instructed to require a defaulting mortgagor to put his account in order within one month of the same falling into arrear, and that should he fail to do so within seven days thereafter, the Town Clerk be directed to take the usual proceedings.
5381 On consideration of paragraph 1 of the report, the Town Clerk called attention to the proposals in sub-paragraphs (b) and (c), wherein reference was made to a percentage of the purchase price as the basis on which advances should be granted. He pointed out that sub-clause 3 (a) of Section 7 of the Birmingham Corporation Act, 1919, which specifically governed advances made under Section 12 of the Act, stipulated (inter alia) that the Corporation shall be satisfied that the value of the premises is sufficient. Reading this in conjunction with Regulation No 77, which introduced the words "market value" in fixing the condition of an advance, he had to advise that the market value of the property ascertained by the Bank's Valuer was the basis on which advances should be made. He suggested, therefore, that the recommendations in sub-paragraphs (b) and (c) should be amended so as to ensure that the percentage of the purchase price therein referred to does not exceed the full amount of the valuation.
After discussion, the Committee unanimously agreed with the views expressed by the Town Clerk and decided to amend the recommendations in question accordingly.
Discussion also took place upon the proposal that the builder should be under an obligation in the cases contemplated by sub-paragraphs (b) and (c) of the report, to take over the property in cases of default occurring within a minimum period of three years from the date of the mortgage; the Town Clerk being eventually instructed to endeavour to find a method whereby legal effect could be given to the wishes expressed by the Committee. The Committee then:
5382 RESOLVED:- That, in order to clarify and render less restrictive the conditions applicable to house purchase, the following instructions be given and the directions contained in Minutes Nos 5212 and 5224 amended accordingly:
(a) Advances up to 90% of valuation may be arranged without collateral security, provided the Bank is satisfied with the applicant.
(b) If the Bank is satisfied with the applicant, advances up to 90% of the purchase price may be arranged, provided always that the amount of such percentage does not exceed the market value of the property (ie the full amount of the valuation), and subject also to collateral security equal to the difference between 90% of the valuation and the amount of the advance being deposited, such collateral security to remain until the mortgage stands at 80% of the valuation.
(c) Subject to the same conditions as specified in (b), advances of a higher amount than 90% of the purchase price may be treated as special cases and determined on their merits by the Chairman or the Chairman of the House Purchase Sub-Committee, their action being confirmed at the next meeting of the House Purchase Sub-Committee.
(d) In the case of default occurring within a minimum period of three years from the date of a mortgage entered into under paragraph (b) and (c) above, the builder to be under an obligation to take over the property; under such conditions as the Town Clerk may consider it necessary to impose; any variation of this requirement to be subject to the approval of the Chairman or the Chairman of the House Purchase Sub-Committee.
(e) The maximum loan period of 25 years to be at the option of the applicant in all approved cases.
(f) The choice of method of repayment to be at the discretion of the applicant in all approved cases.
5383 RESOLVED:- That the action taken in authorising the General Manager, in conference with the City Treasurer and the General Manager of the Estates Department, to consider the formulation of a scheme for the sale of Corporation houses to sitting tenants on the basis of a loan period of thirty years, be confirmed.
5384 RESOLVED:- That the General Manager be empowered to require a defaulting mortgagor to put his account in order within one month of the same falling into arrear, and that should such mortgagor fail to do so within seven days thereafter, the Town Clerk be generally authorised and directed, on notification by the General Manager, to take the usual proceedings forthwith to recover the arrears and obtain possession of the property; any action taken under this Minute to be reported to the following meeting of this Committee for confirmation.
Bank Committee: April 15th 1935
The following report of the Town Clerk was submitted as to the question of the legal transfer of the Mortgage of 26, Westfield Road, Acocks Green, to the second Mortgagee:
March 14th 1935
Re: 26,
Westfield Road, Acocks Green.
A H Berwick.
This man mortgaged the above property to the Birmingham Corporation on the 28th July, 1926, and also executed a second Mortgage in favour of Mr A C Jaques, a Solicitor of this town.
As Mr Berwick became in arrear, Mr Jaques paid off the Bank's Mortgage and, by the vacating receipt, the estate in the property vested in Mr Jaques and he took up the Title Deeds.
The Borrower will not repay the principal monies or any interest, nor will he quit possession of the property, so that Mr Jaques is placed in a difficult position as he is unable to realise his security.
In order that Mr Jaques may obtain the benefit of the Borrower's covenants in the Bank's Mortgage, including the Attornment clause, which would enable him to obtain possession of the property, it is requested that the Mortgage be legally transferred to him.
Your authority is desired to affix the Corporate Seal to the Deed of Transfer, which is to be prepared at Mr Jaques' expense.
5401 RESOLVED:- That the Town Clerk be instructed to take the necessary steps to make the legal transfer in respect of property Nod 26, Westfield Road, Acocks Green, to the second Mortgagee as indicated in the following report, and to enter into the required agreement, affixing the Corporate Seal thereto; any expenses in connection therewith to be defrayed by the second Mortgagee.
The General Manager reported receipt of a letter from the Accountant of the Proof House, Birmingham, enquiring whether the Bank would accept the security of an Insurance Policy to be lodged with the Bank in lieu of a deposit in connection with a loan for House Purchase by an employee. The General Manager had submitted the matter to the Town Clerk who advised that while the lodgement with the Bank of the policy referred to might be regarded as satisfactory collateral security, he did not see how payment of monetary deposit by the applicant could be dispensed with unless the purchase price of the property did not exceed the valuation; also expressing the view that the case appeared to be one of the special cases contemplated by paragraph (c) of Minute No 5382.
After consideration it was:
5418 RESOLVED:- That the General Manager be authorised to ascertain particulars and valuation of the property and to interview the Accountant to the Proof House thereon.
The General Manager submitted the following report with reference to Mortgage Guarantee Insurance:
Difficulty is being experienced in arranging mortgages where the amount of the loan required is in excess of the amount which the Bank would be prepared to lend without the deposit of collateral security.
Some builders have deposited a considerable amount of collateral security with building societies, which they cannot recover until certain eventualities take place, and as a consequence they are either unable to find further collateral security or not sufficient to meet the requirements of the Bank.
In the hope of meeting the situation, efforts have been directed towards arranging mortgage guarantee insurance covering the excess amount of the advance, but at the last meeting of the House Purchase Sub-Committee I had to report that the efforts had failed, owing to Tariff Offices declining to undertake such business unless a deposit equal to 10% of the valuation is paid by the purchaser. The decision of the Tariff Offices has been influenced by the serious losses incurred with this particular class of insurance.
It is known, however, that a Non-Tariff Office would be prepared to undertake mortgage guarantee insurance, providing the fire insurance business attaching to the property is placed with such Office. The Members of the House Purchase Sub-Committee are divided in their opinion as to the advisability of entering into arrangements with a Non-Tariff Office, and it was decided that I should obtain further information as to the extent to which Tariff Offices were prepared to go.
On the instructions of the Chairman (Councillor Cooper) I put three definite cases to the Royal Insurance Company where such insurance is necessary if business is to result, viz:
(1) Houses being sold at £500; deposit £25; loan required £475; valuation £475; 90% of valuation £427. 10. 0d; leaving an excess to be met by collateral security or other method of £47. 10. 0d. Builder is willing to find £16 towards the amount of £47. 10. 0d.
(2) Houses being sold at £425; deposit £25; loan required £400; valuation £400; 90% of valuation £360; leaving an excess to be met by collateral security or other method of £40. Builder is willing to find £15 towards the amount of £40.
(3) Houses being sold at £775; deposit £77. 10. 0d; loan required £697. 10. 0d; valuation £750; 90% of valuation £675; leaving an excess to be met by collateral security or other method of £22. 10. 0d. Builder is not prepared to find any collateral security.
The three cases have been considered by the Royal Insurance Company, who state they are compelled to decline the business in the first and second cases owing to the low deposit. In the third case, however, they are prepared to undertake the insurance on payment of a single premium of £2. 5. 0d (if the loan is not for a longer period than 23 years), or £2. 14. 0d if the period exceeds 23 years but does not exceed 25 years. The Bank would accordingly be insured for £22. 10. 0d until the loan is down to 80% of the valuation.
In view of the fact that the interviews with the three builders took place on March 12th and 13th both the Chairman and Councillor Yates (Chairman of the House Purchase Sub-Committee) are of opinion that a decision should be reached without further delay, and to enable the Committee to do so, they have directed that I should issue this report.
The points to be settled are:
(1) Whether a scheme of mortgage guarantee insurance shall be arranged, and if so, to what extent?(2) If undertaken, whether such business should be with a Tariff Office, or whether a scheme should be prepared in conjunction with a Non-Tariff Office?
As regards No 1, it is felt that the Bank could, with safety, arrange
such business where the borrower is finding 10% of the purchase price. The single premium which can only be a small amount, should
be included in the actual amount of the loan.
(April 13th 1935)
The Committee, after considering the report, decided not to enter into any scheme for Mortgage Guarantee Insurance with a non-tariff Company, but were of opinion that it would be desirable to arrange such insurance with the Royal Insurance Company who already undertake the Fire Insurance business of the Bank. It was accordingly:
5422 RESOLVED:-
(1) That, where a purchaser makes a deposit of not less than 10% of the valuation of the property, mortgage guarantee insurance may be arranged with the Royal Insurance Company for the difference between 90% of the valuation and the actual amount of the loan, the guarantee to have effect until the loan is reduced to 80% of the valuation.
(2) That the single premium payable on such insurance (when not paid outright by the purchaser) be added to the amount of the loan, the total amount advanced, however not to exceed the valuation of the property as ascertained by the Bank's Valuer.
(3) That any variation of the first condition mentioned above shall be subject to agreement between the Royal Insurance Company and the Bank thereon, providing always that the total amount advanced does not exceed the valuation.
(4) That the Town Clerk and General Manager be instructed to take the necessary steps to give effect to these arrangements; and that the Town Clerk be authorised to enter into any necessary Agreements, affixing the Corporate Seal thereto, if required.
The Town Clerk reported that owing to increase of work in his Department it was necessary to approach the General Purposes Committee with a view to obtaining more conveyancing assistance. In this connection the desirability was considered of the Bank making a contribution in respect of the work performed for the Bank by the Town Clerk's Department.
After consideration it was:
5423 RESOLVED:- That this Committee, being of opinion that it would be equitable and desirable to make a contribution in respect of the services rendered by the Town Clerk's Department to the Birmingham Municipal Bank authorise the Chairman to inform the General Purposes Committee accordingly.