The Auckland Star: WITH WHICH ARE INCORPORATED The Evening News, Morning News and The Echo. THURSDAY, FEBRUARY 14, 1935. NATIONAL MORTGAGE PLAN.

Auckland Star, Volume LXVI, Issue 38, 14 February 1935, Page 6

The Auckland Star: WITH WHICH ARE INCORPORATED The Evening News, Morning News and The Echo.

THURSDAY, FEBRUARY 14, 1935. NATIONAL MORTGAGE PLAN.

For the cause that lacks assistance, For the wrong that need* resistavee, For the future in the distance, And the good that ice can do.

With the tabling: of the Government's Mortgage Corporation proposals in the House, a vitally important stage has been reached in the history and experience of farm mortgage finance in this Dominion. The first part of a national plan is defined in a Bill which differs in important respects from the original outline given some months ago in a pamphlet issued by Mr. Coaces, but the basic principles involved remain the same. A Corporation is proposed, which will have a share capital of a million, only half of which, it is now provided, ' shall be offered for public subscription; the proposed bond issue is to be limited to fifteen, instead of twenty, times the combined reserve and capital resources of the Corporation; and the lending margin has been slightly reduced, from 70 to 66 2-3 per cent, to bring it within the range of trustee investments. The latter two changes are in. the right direction; they increase the.measure of security which the Corporation would possess in carrying on its suggested operations; but the first change has nothing to commend it. In dividing the share capital up into two equal proportions the Government is merely throwing a sop to its farmer supporters; it is making a compromise at the whim or dictation of those who demand that the Corporation should be a purely State-owned concern. This concession may be enough to satisfy them, or at least to silence their objections, but it is not likely to arouse much enthusiasm anywhere.

A reduction in the proportion of the bond issue to fifteen times the cash resources of the Corporation is" in line with a suggestion made in the valuable report recently compiled by representative business and financial interests. The change in the lending margin is also a concession to the dictates of sound business practice. Will these improvements go far to ensure the success of a scheme of the magnitude outlined? This raises a question as to what the Corporation is intended to do. Its first and primary objective, from the point of view of the Government, is to take over the whole of the mortgage liabilities of State departments, amounting to £50,000,000, and to use its energies to put th,ese on a sound business basis. Beyond this it will lie required and permitted, within the limit of its resources, to lend to private mortgagors. These millions of mortgages are to be financed by the issue of bonds. Under the Bill, as it now stands, it would be possible for the Corporation to lend up to about £60,000,000. Whether the Corporation would be able to reach this figure in actual practice would depend finally upon the amount it was able to borrow by the sale of its bonds. And this would depend, in turn, upon the rate of interest offered. The lending rate would have to be, say, one per cent above the borrowing rate, and this rate would determine the demand for accommodation. Could the Corporation lend lower than, or as low as, private financial concerns and mortgagees? And to what extent would it be able to attract business away from them? Which borrowers would be most likely to have recourse to it? If the best, which is unlikely, inroads would be made into private financial domains; if the worst, the Corporation would be leaving the cream to others. These are some of the inquiries suggested by this Corporation scheme, and they have a direct and important bearing upon its workability.

Discussion in the House may clarify the issues, and the debate is certain to be one of the most interesting and, it is to be hoped, most enlightening in which members have been called upon to take part for a long time. It is fitting, therefore, that a brief space should be allowed in which to consider and digest the proposals. Parliament is faced with an unusually responsible task, which is none other than to decide whether this country should be committed further to developments in a Socialistic direction, or should- retrace its steps while there is yet time. Farmers, thinking more of their difficulties and needs than of the far-reaching consequences of the proposed development, have become strong advocates of a Socialistic advance; private interests and a small section of the rural community see the dangers ahead, and urge the State to withdraw. The time is approachin<r for the raising of the moratorium, and this makes it impossible for the State to stanu still. It must go either backwards or forwards.

During the standstill period, extending back for several years, the position has not remained entirely static; indeed, many creditors and debtors have been busy with private readjustments. This movement.could be accelerated by the provision of suitable machinery for negotiation and the settlement of differences between mortgagee and mortgagor. The business and financial community asks for such machinery. Against this the Government, reflecting largely the colour of rural opinion, takes the view that the reorganisation and consolidation of farm mortgages can be carried out more smoothly nnd satisfactorily if the process is lubricated by State-established funds, and in the background there is the matter cf a State guarantee. Probably the most important point to consider is whether a Corporation could bring about mortgage recovery and ensure to farmers the full benefits of the present low rate of interest, without at the same time bolstering up land values and transferring seme part of the loss, due to the inflation boom, from the shoulders that should carry it to those of the taxpayer.