MORTGAGE CORPORATION.

Auckland Star, Volume LXVI, Issue 55, 6 March 1935, Page 6

MORTGAGE CORPORATION.

There is considerable confusion of terms in the Mortgage Corporation- Bill, which provides, in paragraph 38, for transfer of "stock" to the Government in consideration of cession of about £.50,000,000 in mortgages, interest on the "stock" to be similar to that on "stock or bonds" issued to.*the', public.■■- "Shares" of £■500,000 value are to be issued to the public, and the amount of capital may be increased bv shareholders' resolution. This capital is a species of debenture stock, carrying one-third more interest than the first issue of bonds, since it is to be-at 4 per cent and is intended to rate 1 per cent above bonds. Unless the Government "stock" issued against mortgages is not to; count in the permissible "bonds" issues of fifteen times the capital and reserves, there will be practically nothing to be issued against private mortgages. Government "stock" will presumably be saleable, and the rate of interest to be paid thereon will dictate what mortgagors will have to pay. J* the original share capital is considered as

"stock," the State may receive 4 per cent over all its "stock" and bare interest charged to mortgagors by the corporation could not be less than 5 per cent, or, with amortisation and rebate.' GJ per cent. State mortgagors will nominally have freedom to remain under their old contracts, but removal of legislation protecting those contracts and reducing interest thereon may be expected to compel them to execute fresh contracts, in which case they must add 2 per cent to their mortgages for the benefit of the corporation's reserve fund, a total of £1,000,000. This will be the real reserve, as the beneficiary ownership of the £2.500,000 securities of the local authorities branch practically remains with the Government, the corporation merely acting as collector of money for the State and receiving as a collection fee the difference, if any, between the annual interest receivable on the securities and the average annual rate received from the corporation's eecurities. (It is conceivable that the corporation may lose if interest rates rise.) Why, then, is the almost negligible amount of £500.000 private share capital being raised, with voting privileges, with one-third more interestendangering the bonds issues—and with hosts of complications? The State appoints all the first directors and much is left to be mutually arranged between those directors and the State. Even the transfer of Government mortgages may be back-dated. Limitation of bonds to fifteen times £3,500,000 precludes any immediate possibility of dealing extensively in private mortgages, so that the scheme resolves itself into an offer of preferential treatment to subscribers of half a million t>f private capital to enable the transfer of nominal control to the corporation. A. K. KOBINSON.