The vital principle of this purely cooperative idea is that the loans shall be made only to persons living in or near the community, so that the officers are able to estimate accurately without difficulty or expense the value of the property. In small communities, men know pretty well the value of the properties in their neighborhood and the standing of their owners. The officers usually serve without pay, and if they are reasonable in their caution, this type of cooperative enterprise is practically always a success.

The advantage of the building and loan association to the borrower is that, in addition to sharing in the profits, he pays off his debt in regular instalments. Where he borrows with no such provision for paying off the debt, the main point, of course, is to have some assurance that the lender will extend; and the lender most willing to extend is naturally the one who is in a position to ascertain the borrower's good faith and standing without going to trouble or expense.

The strength of your loan, of course, depends on the strength of the building and loan association. In trying to determine this strength, ask yourself questions along this line about the institution you are considering: Is it in good standing in the community? Does it lend money far from home? Is it careful about making loans even in its own community? Does it keep up careful inspections from month to month of the property on which it lends money? Does it continually make a great many loans to any one group of contractors, or real-estate operators? (If so steer clear of it.) Does it make a practise of making loans on every house that is erected in any boom suburban development? (If it does, leave it alone.) Here is a little instance showing how the building and loan association works: John Smith and his wife live in a fairly prosperous middle-sized city. They have been married several years and have accumulated, by dint of hard work, the sum of two thousand eight hundred dollars. They buy a lot for one thousand three hundred dollars. Then they decide to wait with the one thousand five hundred dollars remaining, and work spine more until they get enough to build. They make up their minds to wait - until some one casually reminds them they can go right ahead by working through the building and loan association.

The house they planned for together with the lot costs four thousand four hundred dollars. They put in their one thousand five hundred dollars, and learned that the building and loan association was willing to lend them the remaining three thousand dollars.

Here is the way Jones got the loan of three thousand dollars. He became a member of the association, and bought thirty shares of stock in the association, par value one hundred dollars each. Jones agreed to pay for these shares in monthly instalments of thirty dollars. When his house was ready for occupancy, an officer of the association examined the property, appraised the house and lot together at about four thousand five hundred dollars, and after an examination by the association's lawyer, found the title clear and valid.

At the next monthly meeting of the association, Jones got his loan of three thousand dollars, which he agreed to pay back, including interest at six per cent. at the rate of thirty dollars a month. The association secretary explained to Jones:

"Of course, you realize that your monthly payments of thirty dollars, which you have already begun, are not really a direct paying off of the loan, but simply the continuous instalment payments for the thirty shares of stock you bought. Therefore, we can't tell exactly how long it will take to pay off the loan. In the course of time you will receive the accumulated profits to which your thirty shares entitle you. Therefore we can not tell exactly how long it will take you to pay out the loan - anywhere between seven and twelve years, according to whether our profits are large or small. As soon as your monthly payments and your accumulated profits on the shares of stock equal three thousand dollars, we cancel your loan and you have your home free and clear."

Some one may say, "Why go through all this complicated machinery and pay extra for the maintenance of such an organization?" The answer is that the expenses of conducting the societies are usually small. The latest figures I have available, those for 1913, show that the expenses of conducting the local savings and loan organizations of the state of New York were about seventy-four cents for each one hundred of invested capital. Furthermore, the dividend yield on the stock of the building and loan association is nothing to sneer at, for (continuing the same figures) the average dividend declared in that year upon the capital was five and six-tenths per cent.