MORTGAGE PROPOSALS

Evening Post, Volume CXIX, Issue 32, 7 February 1935, Page 12

MORTGAGE PROPOSALS

ADDRESS BY MR. COATES

CONTRACTS AND VALUES

NEED FOR READJUSTMENT

The contention that abnormal times such as the present called for special measures: was emphasised by the Minister of Finance (the Rt. Hon. J.G. Coates), when addressing the Dominion Executive of the New Zealand Farmers' Union today on the . subject of the proposed Mortgage Corporation. Mr. Coates sketched the_ proposals which are to be placed before Parliament next week, and made the point that the objective was^the financial rehabilitation of the farming community,' Replying to. criticism that the proposals were too,far-reaching, he said that if the system adopted by a country, was unsuitable! to changed conditions and ideas, then it was right to see that it was made to work in with prevailing conditions. He said that he was not being careless of existing contracts, but added that if the value was not there he could think of ; no better method than, the tribunal proposed by the legislation to effect a readjustment. . Mr. W/J. Poison, the president, said the Farmers' Union - appreciated the work. Mr. Coates \ was' doing, and the difficulties of reconciling conflicting interests.^ There, had 'been much criticism over the raising. of the exchange rate >, kut that had now practically died away... There! had also been criticism over- mortgagors' relief legislation, but chambers- of commerce were now anxious to have the mortgagors' relief legislation extended. The Minister would no-doubt tread on thousands of corns jwith the proposed legislation, but.,.•Jiev;believed that the criticism wpuld^die away and the benefits would'be -realised later"on. The Farmers' Union; believed that the legislation was essential-^and that it must be proceeded with.,: The fate of the - country depended oh it being proceeded with, and also the \fate of the Government, if he sniight say: that. .The union, however, had very strong, views, and had carried a Resolution, declaring that the executive' approved of the creation of a Mortgage Corporation subject to the (provision, firstly, that; the bonds be soldat a rate" of interest that would secure a reduction in the farmers' interests,, and, secondly, that the control be;co-operative, '.or in the alternative by the State, -preferably the former. "W.e'stancLlOO per cent, .for co-opera-tion,' and we are definitely opposed to shareholder) control/ said Mr. Poison. . Mr.: Coates said that the Mortgage Corporation was'first regarded as something revolutionary, though that opinion had.been modified since it had been discovered, that there had been a successful private,corporation iriScqtland for two -years and a corporation '«v England for four: years.;. The, basis of the-proposals was the reorganisation of farmers' finance, as it had been :shown-that theordinary system of flat mortgages did not meet the requirements."of the farmers as a whole. Under the proposals, the farmer would have an; opportunity; of converting to alower rate of interest. Regarding the State Advances Office, it. had been said that the larger mortgagees got preference -over the smaller ones, but as far as the .present prpposals; were concerned they were: looking: forward to having the smaller man and the larger man welded, together.-\ . ; NOT A MONOPOLY. Criticism had been made that the Corporation would be a monoply, but if "it meant, the: lowering of the rate of interest" and the establishment of a system which fitted in nearer to the requirements of ;the primary producer, that consideration in his opinion overcame, all others. The claim that it would be a, monopoly he considered was ■ exaggerated, and -there was no reason why. other Corporations should not, come.into competition if they could survive 1. There was no reason why insurance companies prepared to lend money at lower rates should not be in,the iield. ".-. : .Referring.,to the fact that' the Corporation would embrace rural and urban, interests, Mr. Coates said that the members, of the union would agree that; ; the, spread of mortgages and security, lent strength. The bonds would, be' sought after to greater extent, competition would be keener, and the interest rate the farmers would have.to'; pay would be reduced;1 that was the Government's main consideration. The proposals, envisaged taking thebest,from.private and State control; arid •throwing them together, and it;was thought'that" that should result in a satisfactory organisation. No one would-argue that there were not tremendous to- be gamed from, taking the best of elements from private enterprise. The reason for having" share capitar was mainly to give; a >feeling of: confidence on the part:of~the investing public that the conduct/of'the organisation would be along Klines • which lend. stability, confidence,; and credit/ Under the proposals the lending term would be. ex-tended-from :3QJ years to 50 years, and;the,Government wanted to make conditions sate; for the borrower arid give a.greater..measure of security to th>,lender." People said that no one would buy the bonds, but that was not correct: It was well known today that inquiries-were being made for good- investments, and, in fact, some institutions were refusing to take deposits. He submitted that the'bonds would,;be, sought after as a ready means of investment. . The demand for the. bonds would 'regulate to a great measure.the amount of interest the bonds would; collect and the amount of cost to the farmer and others when the, loan was; obtained. GUARANTEE ASPECT. Was State guarantee of the bonds necessary?asked Mr. Coates. It would add to the National Debt and there would be other reactions. Mr. Poison said that the utmost the union.: had-asked was: that the State should start the organisation. Once reserves were: built up. the State would slip'out. -' ,\ ','.'" " .MryCoatesrCan.you guarantee a certain number of bonds? -Is it possible to drop out? Mr. Coates said the Government believed'the proposals were in the interests'of the whole country. • Fifty, millions of State. mortgages would be handed over to the Corporation, and any losses made on them in the future would become a charge on the, State, said Mr. Coates. They were gilt-edged. r ; DAIRY FARMERS IN TROUBLE. "• It had been stated that only 5 or 10 per cent, of the farmers were in difficulties today, but on the basis of the Dairy Commission's report approximately 50 per cent, of the dairy farmers could not mcci their; liabjjj.

ties. That figure would probably not be exaggerated if it referred to other sections also. . There was a very unhappy feeling among the farmers. In the last three or four years arrears of interest had been . postponed, and it might be found necessary to continue the moratorium in 1937. But what about the man with a family growing up, who had liabilities which it was impossible for him to meet? There was a hopeless feeling, and the next step would'be deterioration. The question took on a national aspect. Dealing with the rehabilitation of the farmer, Mr. Coates said that ...the opinion was that the time had arrived when there should be a straightening up. Was the position to be faced in the national interests? Once it "was said that the time had arrived when they should face the position, they had to make up their minds how they were going to tackle it. CONTRACTS AND PRICES. He had the greatest respect for contractual engagements, but it had to be remembered,that the farmer and the people. of this, country had nothing to do with the catastrophic fall in prices. Those men-had made contract? in perfect good faith, and, having made them, were keen to carry them out, but the point was: Could they carry them out? Was there, a method by which the position could be.fairly and squarely faced? While the legislation might have the effect in the minds of some people of detrimentally: affecting contractual rights, was it realised, perhaps, that 1 or 2 or 3 per cent, -was being gladly taken today, and that the rest of a mortgage really might not be worth anything at all? He thought that they were entitled to loojc at the position from that point of view. In any case, was there a fairer system than to allow three men—a Judge of the Supreme Court and two assessors as a Court of Equity—to decide at the end of a period of five years what should be done? . But if contracts, one way or the other, bad the effect of hinderingproduction of the country, then he thought the. problem had to receive quiet consideration. A voice: The.Bankruptcy Act would wipe them out. Mr. Coates: I quite agree that the Bankruptcy .Act would wipe them out, but would any man; today suggest that the Bankruptcy Act should apply? If it did, would: that make for stability? It would be the worst thing in the interests. •' of - the mortgagee himself, apart from the effect of it on the national income, of the people. The only alternative is coolly and definitely to meet the situation by a method \ of readjustment. , ,-.'.'... . ' Mr.. Coates,added, that .only mortgages; prior to April, 1933, and mortgages, now under, the purview of the Mortgagors' . Commissions would be considered.. It was prpposed to utilise the.TVfortgagors' Commissions, though it might.be necessary: to strengthen them. .. ....;'.. Kef erring to criticism that the proposed legislation was too extreme, Mr. Coates said that it was the duty of those responsible for guiding a country in-difficult times, to takei steps very often to save people from themselves. "They won't thank you for being a grandmother, I admit," he said. There was danger; through- people " using fallacious arguments, thus misleading people completely. - He could think of no better system than the one we had at present, but it that system did not fit in with changed conditions and ideas, then it was right to see that it was made to work with the conditions that existed. CONTRACTS AND THE MAJORITY. ,: The system was not being: destroyed, but;. prima facie, it might appear that contracts were being interfered with; but if those contracts were based on fallacious values—prices over which there was no control—then surely the welfare of the majority was the .first consideration, and when they got down to real facts they found that in the farming industry lay the basis of ! the. country's past, present, and future prosperity. NOT BEING CARELESS Mr. Coates said he hoped that no one present thought he Was being careless with existing contracts; he was not. But quite clearly and definitely, if the value was not there, then he could think of no better method than allowing a Judge of the Supreme Court and two' assessors, after a testing period, to see what the liability should be. He thought the period of five years was fair. Talk that serfs were being made of the farmers was not correct The whole object of the proposals was to meet the farmer and at the same tune to see that the fair thing was done to those who financed him. If that was done on a fair basis, he did not think it would interfere with those investing- ; ' -; : : .. ...... • ■ . Mr. Poison asked if the State was behind the Corporation, as it must be, whether it' was not desirable to admit the fact,' and thereby get the rate of interest as low as possible. ■ ■. .Mr. Coates: Would it actually make interest rates cheaper? After all, there are two sides to. the question. Just as the bond issues would be guaranteed, so State securities . would be depreciated. : Also, was .it'not wise to keep the State issues clear? He said that the Government had been told unmistakably that if it .wanted to go on the market for Government requirements, it would find some difficulty if it placed' a' Government guarantee behind local, body securities. Was it wise for;- a country to • place its credit behind.the bonds?;