There is a plan of mortgage lending which has some special features and under which bonds are issued and sold to investors. Under this plan mortgages of various amounts, large and small, are assigned to and deposited with a trustee by a mortgage company. The mortgages are the collateral for the bonds which are issued by the mortgage company. Mortgages held by the trustee must always equal or exceed the amount of bonds outstanding. As mortgages are paid or withdrawn from the trustee, other mortgages are assigned to replace them. Mortgages are made in accordance with certain strict requirements as to security, location, character of property, etc. These requirements are sometimes set forth in the collateral trust agreement. Each bond has a certification by the trustee that it is one of an issue secured by the mortgages deposited under the collateral trust agreement.

Bonds are issued in convenient denominations. They are the obligation of the mortgage company secured by the deposit of real estate mortgages with the trustee. When issued by a corporation in good standing they should be sound investments.

The Prudence-Bonds of The Prudence Company, Inc., already referred to in this chapter, and bonds issued by the Mortgage Bond Company of New York City are examples of collateral trust bonds. The first of these corporations advertises that its bonds are nothing more or less than first mortgages of the highest type divided into denominations to meet the requirements of the average investor; that the corporation deposits with the trust company a number of prime first mortgages which, taken together, form a trust fund; that the bonds are issued in denominations of $100, 500 and $1,000 and are authenticated by the trust company; and that each bond is secured not by one mortgage, but by every mortgage deposited with the trust company.