FARM MORTGAGES

Auckland Star, Volume LXVI, Issue 141, 17 June 1935, Page 9

FARM MORTGAGES

CORPORATION AIMS.

TO RESTORE CONFIDENCE

END POLITICAL PRESSURE.

"While the corporation will avoid some of the unpleasant political pressure brought to bear on the State Advances through the Minister for that Department, it will not escape political pressure, and in many ways will bo more exposed to such pressure than a scattered body of private lenders," said Professor B. E. Murphy, professor ot economics at Victoria University College, in the course of a lecture on the Mortgage Corporation to the Wellington Chapter of the New Zealand Institute of Secretaries. "It is a large concentrated semi-State body," he added, "and it w'll be regarded as an impersonal corporation by organised debtors and politipians alike. In future, it will be more likely to be manipulated in the interests of the debtor class than will private mortgages, especially as results can be diffused over a large body of bondholders and shareholders in the form of a percentual reduction of their values. "We are building up precedents that we shall have to meet in the frture in perhaps embnrrassing circumstances. The political influence of the debtor class and the debtor mentality is just as great a danger to the corporation as to provide lenders and, for psychological and technical reasons, will be more effective. This pressure will be exercised on a board on which bondholding interests are not represented, and on which Government nominees will be in a majority. "The corporation has no monopoly. It will get either the best or the worst securities. The best mortgages will stay outside, and split the 1 per cent spread between the parties, the mortaagee doing his own management. Many lenders will prefer the direct control they get under the present regime." Brake on Land Values. Professor Murphy thought that if the Mortgage Corporation were successful in its desired objectives, it would act as a brake on the rate of descent of land values. It could hardly do more with safety, and ultimately might get the Government out of the moneylending business. Spectacular results could not be expected. The corporation could not have any direct effect except in a small way on the basic problem of land value deflation, and the fact that much mortgage debt in New Zealand was not represented by available assets. "Our problem is not insufficient credit or capital; it is the fact that land is not now regarded as an eligible security, and the external outlook is not good," he said.

In the last decade mortgage money had been getting shy for the following reasons: (1) The feeling that land values were too high, and that there had been too much land speculation at inflated prices; (2) losses sustained by lenders in the 1921 slump and thereafter; (3) moratoria and interest reduction and mortgage adjustment legislation and fear of its perpetuation and repetition; (4) city securities had been preferred because of the fear by lenders of the political power of debtor farmers; (5) the competition of local bodies and the State for investible funds had grown greatly. Interest rates were good, and such securities more liquid, easier to get into, and get out of. Its Aims and Prospects. "The objects aimed at by the corporation," he said, "are:— "(1) To make mortgage investment once more attractive to lenders by introducing a superior bond system and thus drawing more money into mortgage finance, increasing the supply, and therefore lowering the price of capital, i.e., rate of interest. This will depend on whether the system allays the apprehensions of mortgagees at the present time. It does not seem likely to do this, as mortgagees are afraid of present high land values and . further interference with contracts, and there is nothing in the mortgage bond corporation idea to allay these apprehensions,

"(2) To reduce interest rates by lowering the factors of risk, management and inconvenience attaching to and forming part of the gross or commercial interest rates. This depends on whether coste of administration can be kept down. It is superior on grounds of convenience. Will a spread of 1 per cent cover costs? It is idle to expect any spectacular reduction of interest on this ground. As the depression passes, interest is "more likely to rise than fall.

"(3) To amalgamate Government lending Departments and cean them up in view of losses arising out of the general situation already described. This would avoid some duplication and produce »ome economies. There is no creation of new machinery, but a reduction of existing machinery, and some saving of overhead should accrue from the change;

"4. Some say there lias been a desire to divert attention from the unsatisfactory condition of the Government mortgages. There is no evidence of this, as the Act is perfectly open about it. In any case, the parlous condition i' the State mortgages (and on this point not much information is available) i* not the. responsibility mainly of the pi'osent Government. Past Governments and the people in the last generation are to blame for the trouble in so far as anybody can be blamed.

".">. To pacify rural supporters by making a colourable attack on the rate of interest.

"0. To side-track Socialist experimenters and currency cranks, and take the vyind out of the sails of extremist proposals. •

"7. To discourage land speculation. It will have little effect on land speculation. Did the State Advances encourage or discourage land speculation?

' ; 8. Finally, to take the Government out of the mortgage business as a direct lender."