NATIONAL MORTGAGES

Evening Post, Volume CXVIII, Issue 51, 29 August 1934, Page 8

NATIONAL MORTGAGES

The outline of a national mortgage system as given in the Budget leaves so many important points unsettled that a final judgment upon the proposal cannot be given. It will be readily admitted that the present position is unsatisfactory, and, as the Minister of Finance says,; "an obstacle to economic recovery." It is reassuring, however, to have the statement that the compulsory interest reduction and mortgage relief measures "cannot be anything more than a temporary expedient" and that action is needed "to strengthen confidence in mortgage investments."

Whether the action is really successful will depend upon one main factor: whether it is directed towards removal of the existing reasons for lack of confidence, or whether it attempts to buttress the restrictions by further restrictions and State intervention. The Minister of Finance would appear to have decided against the latter course, for he says:

Any further general reductions by legislation would bo inequitable, and would tend to shatter confidence and thereby keep capital away from mortgages, which would hardon interest rates and be a retrograde step.

Study of the plan in outline, however,, leads us to ask for further information before accepting this disavowal of legislative action as allinclusive and final.

It is clear that the State will be deeply interested in the scheme. Under suitable financial arrangements with the Government, it is stated, the new organisation will take over the present investments of the State Advances Office, the Lands Department, and the Rural Intermediate Credit Board. Also the National Mortgage Corporation will be established by statute upon a basis somewhat similar to that of-the Reserve Bank. These statements imply State and private capital, and control by a board in part appointed by the Government and in part chosen by subscribers, of private qapital. Two questions here suggest themselves: (1) What will be the basis of "suitable financial arrangements" for transferring the present loan investments of Government Departments? (2) How far is the Government to become interested in short-term as well as long-term finance? At present, though some of the Government loans are not well secured, the Government has first call. It is in a better position than the average private mortgagee. Will the arrangements maintain this, or may the Government hand over its investments 'on terms which will afford the corporation a margin, which may be offset against possible losses through acquisition of private mortgages? The existing State interest is principally in long-term lending. State Advances Office investments far exceed the shorter loans of the Rural Intermediate Credit Board and the Lands Department. Though "it is not intended that the corporation should take over all mortgages," will its interest be dominating? And may this not lead to a diminution of private interest? We have seen this in the operation of State advances. Private finance, compelled to graze on the margin of the field, wandered away to other pastures. Thus arose a demand that the State should expand its lending. A Reform Minister of Finance resisted this, but his United successor met the demand with iiew millions—which heightened the boom and made the subsequent slump worse. State intervention, presenting temptations to political pressure, has its drawbacks.

The most important question relates, however, to the terms on which private mortgages will be acquired. It is intended that the corporation shall "lend for repayment of existing mortgages." Mortgagees now have rights, though they are de-

barred for the time being from exercising them. The protective legislation has been extended longer than we think was necessary. Is it proposed that mortgagees should be asked, under cover of this protective legislation and with the possibility of its further extension if they prove obdurate, to surrender their rights on terms that will maintain the boom period equities of owners? Or will first mortgagees be paid off in full, and the loss borne by a semi-State corporation? Is there a possibility either of a "voluntary" conversion of private debts, or an indirect subsidy at the taxpayers' expense to conserve the equities of deeply-involved property-owners? Moreover, what limitations are to apply in the operalions of the proposed corporation? Will it handle urban and rural loans? Will it accept the good and leave the bad, or leave the good to private lenders and bear the burden of-the doubtful? Will it have any power, if it keeps the first mortgage position sound, to prevent the development of speculation through 'the piling-up of second and further mortgages through transfers from strong holders to weak holders? There are other points that need consideration, but these certainly call for definite answers before the Government commits the whole country to what may bo a lending operation far greater than anything hitherto contemplated. The outline so far given suggests the possibility of a beneficial System correcting haphazard and speculative finance, but it also presents such scope for harm that it calls for the closest investigation and sound judgment exercised by a mind free from the preconceived ideas which have brought mortgage finance to its present unsatisfactory position.