A NEW STATE COMMITMENT

Evening Post, Volume CXVIII, Issue 96, 20 October 1934, Page 8

A NEW STATE COMMITMENT

The Dairy Commission's proposal for a Rural Mortgage Corporation is submitted as a means of affording financial relief to dairy farmers. It could not,, in practice, be thus restricted. This much the Commission admits in its reference to the Budget plan for a National Mortgage Corporation. The Commission had arrived at its conclusions, the report states, before the Budget was brought down, and its scheme is not intended in any way to be regarded as put forward in opposition to the Budget plan covering urban as well as rural mortgages and providing for merging all existing Government lending bodies.

Wo realised that it would in any event have been regarded as an instalment of a wider scheme, but wo felt that, though we could not separate dairy-farm mortgago finance from rural-mortgage finance generally, we could not, consistently with the terms of our Order of Reference, go beyond rural finance and embark on the consideration of a scheme embracing urbanmortgage finance.

Clearly, therefore, the scheme must be examined, not in its immediate and limited application to dairy farms, but in its eventual extended form, covering all classes of real estate securities. Such an extension may be deemed certain, for the wool grower, whether he needs it or not, will demand as much help as the dairy farmer. He is receiving it now through exchange. And we do not see how urban mortgages can be shut out.

The weight of the liability to be thus placed on the community at large cannot be accepted without misgivings. We know the pressure that has been brought to bear upon Governments in the past to lend more freely through the State Advances Office and other State Departments. . A National Mortgage Corporation would require to be closely linked with the Government of the day—closely enough for the Government to make its influence felt—otherwise the Government guarantee would be most risky. Can we imagine, then, that a Government with widely oxtended lending powers would be able to stand against a demand for easier terms for borrowers? The variable rate of interest, while it is intended (and

would partly operate) as a safeguard, would tend to create another

weak point for attack. The Commission has argued that this variable rate would help to ease the weight of interest when times were bad and produce prices low. We are not sure of this. The rate would be fixed to keep the bonds at par; but interest does not respond at once to price movements. When prices first fall there is a tendency for the cost of financial accommodation to harden. If this tendency were observable, would a National Mortgage Corporation dare to raise the interest rate? Would it dare to do so at any time? We have given our grounds for believing that the Rural Mortgage Corporation would become a National Corporation lending in town aiid country and accepting all mortgages. It would also have to accept all on similar terms. It could not write, down the farmer's debts without being under an obligation to make equal concessions, in the towns. This could not but have a most disturbing effect on investments, including the investments of Government Departments, insurance societies, and other institutions whose primary duty is to the people who have entrusted savings to their keeping. Is it desirable or necessary that such great disturbance should be created and all lenders and investors compelled to contribute to the rehabilitation of borrowers, even where the borrowers may be much wealthier than the small lenders? The Commission's argument is that the measure it recommends is necessary now as a corrective to the mortgage relief legislation. "The maladjustment of rates of interest on rural investments," it is stated, "lias been brought about partly by restrictive legislation designed as a necessary measure of relief to protect farmers from the full force of a severe fall in produce prices." While holding that this legislation was necessary, the Commission admits that it has impaired confidence and made it practically impossible for many farmers to refinance on lower terms of interest. Therefore, what is really a bigger instalment of relief is necessary now as an alternative to abandonment' of the system, which abandonment cannot be recommended "because of the serious position which would result." But we cannot admit that the case against gradual and careful modification of mortgage relief measures is conclusively proved. The Commission states that, under its plan, protection would be withdrawn from mortgagors whose position is basically unsound, . and the report adds:

The withdrawal of protection in these cases will not necessarily result in tho dispossession .of the mortgagors, for it is probable that many mortgagees will prefer, to compromise with their mortgagors rather than risk making a greater loss through a forced sale.

If such compromise is probable with unsound mortgages, is it not possible also with those which are basically sound? Would it not be advisable to explore this possibility before making a new State commitment of unknown magnitude?