URBAN MORTGAGES

Dominion, Volume 33, Issue 43, 14 November 1939, Page 3

URBAN MORTGAGES

Troubles Of Property

Owners

DEBT ADJUSTMENT Difficulties Of The Slump Years Causes of the difficulties of urban property-owners during the depression are discussed in a report on the administration of the Mortgagors and Lessees Rehabilitation Act passed in 1936, which has been prepared by the Under-Secretary for Justice, Mr. B. L. Ballard. The conclusions are, based on a series of questions submitted to adjustment commissions by the Department of Justice for their replies.

Adjustments of mortgages on property other than farm land or stock were based on values subsisting on October 1, 1936. The report states that fundamentally the future maintenance of these values depends on the con-

tinuation of a state of general employment at a wage level and on the maintenance of a price level not less than ruling in October, 1936, and so long as those conditions exist or do not materially change there should be no call for any further adjustment. Briefly, the causes of the difficulties of urban property owners were: (a) Excessive high purchase price: (b) lack of capital; and (c) loss of employment. High Purchase Prices. ‘■The third factor precipitated the crisis in many cases,” the report continues. “The first two factors were directly related to a shortage of the supply of houses for sale or available for renting. Excessively high purchase price was a direct source of trouble. Lack of capital involved a low deposit and the holding of the property under an agreement for sale and purchase. When property held under agreement was subject to short-term mortgages and a mortgage fell due, the purchaser was immediately in grave difficulties. Many purchasers of this type should never have bought properties at all, and should have remained tenants, but they were forced into purchasing because of their inability to rent. ‘•Whatever the ultimate position of these particular applicants, it is clear that unless an adequate supply of rental houses is made available at a rate proportionate to the income level of the people the difficulties due to the purchase of houses on low deposits must inevitably occur. Where people in the lower-income groups cannot rent houses, they are forced to purchase them, and their means, or lack of means, necessitates low deposit. A vendor who sells on a low deposit will do so only if he is getting more than the property is worth. Retaining Possession. “Generally speaking, the commissions reported that, except as to isolated cases, the adjustments would enable the applicants to retain the possession of their properties. Some of the commissions in their reports advert to the possibility of a financial crisis in about three to four years’ time, when some thousands of mortgages will fall due together. The matter of refinancing will constitute a problem that will require careful consideration.

"In the majority of cases advances ou first mortgage arranged ou a trustee basis proved sound, and, while there were remissions of interest in some cases, the property generally sustained the amount of the principal sum due under the mortgage. Second mortgages advanced on the usual basis of 50 per cent, of the equity over and above the ‘trustee’ first mortgage were not so well secured, and it was found that arrears of interest had to be remitted, and, as was estimated by one commission, about one-half of the principal sum had also to be written off. Advances ou a more liberal basis on second mortgage or ou third mortgage, and sums due under agreements for sale and purchase, suffered fairly severely. These amounts, however, usually represented unrealized and unrealizable vendor profits. Expensive Financing. “One commission was' impressed with the number of private investors of small means in short-term mortgages. It thought that many mortgagees of that type were attracted by tile higher interest rate and by the nominally limited term of the advance —that is, they placed considerable reliance and importance ou the covenant to repay the principal sum at the expiration of the term. The commission thought that reliance on repayment of the principal sum at the expiration of the term of the mortgage was unwarranted, as the mortgagor could not make arrangements for repayment or refinancing. The short-term mortgage is undoubtedly an expensive form of financing. ‘'All the commissions were of the opinion that mortgagors had in general honestly tried to meet their commitments,” says Mr. Dallard. “I make one final observation on this subject. If in the future extensive price fluctuations occur—that is, if there is a period of high prices and high wages, followed by a period of lower prices and lower wages—-a problem identical with that at present under discussion will recur in connexion with mortgages on properties purchased during the period of the high price level. The prices of farm commodities are reflected in all spheres of economic life, and if these are fixed at the rates ruling during the last war the prices of town properties will inevitably soar, and immediately those farm prices drop the mortgage structure will once again become an acute problem.”