MORTGAGE FINANCE

Hawera Star, Volume LIV, 21 February 1935, Page 7

MORTGAGE FINANCE

MR DOWNIE STEWART’S VIEWS

* ‘'HYBRID SORT OF SCHEME’’

NOBODY PLEASED.

(By Telegraph— Press Association,) ~ WELLINGTON. Feb. 20. • /liie Bill bail several distinct objectives in view, but insofar as it was based on the report of the Dairy Commission as a means of assisting distressed dairy farmers it seemed correct to say it was dealing largely with the North Island problem, and that all the elaborate and interesting statistical tables dealt with North Island districts, said Mr W. Downie Stewart in making his contribution to the second reading debate in the Alortgage Corporation Bill in the House of Representatives to-night. It was lor that reason, continued Mr Stewart ,that the people of Otago at least were puzzled at a proposal to erect so grandiose an edifice to vope with a problem that for the most part they were able to handle with their own local finance resources. Even tinder the State Advances Department only a small percentage of advances were in Otago. To achieve his desire to assist the dairy farmer and not increase the country’s capital liabilities, the Minister of Finance had to choose between a continuous expansion of the State Advances Department and the creation of .one or more independent mortgage corporations. The Minister had made his choice in favour of the latter; hence the Bill. Mr Stewart agreed with the choice, but did not agree that the Minister had achieved his object, except in a shadowy way. The Bill was a hybrid sort of plant that purported to set up an independent statutory organisation, but the State still remained deeply involved in its control and administration and in its financial liability. The result was

that however well-meaning the Gov-

ernment’s effort was it had pleased nobody. The Socialists were displeas-

ed because they naturally believed in an omnipotent and presumably benevolent State monopoly. The commercial community was alarmed because it

saw that the new organisation was liable to implicate and involve financially the Government and the taxpayer more deeply than ever, and farmers, judging by their papers, were hardly enthusiastic, as the Bill raised the cup of hope to their parched lips but could do little to satisfy their thirst. HOUSE HANDICAPPED.

What relief could be given the farmer could not be fully judged till one saw the next Bill dealing .with rehabilitation. The House was greatly handicapped by not having both Bills before it. Even if the new organisation were made truly independent and self-contained, it could be dangerous by reason of its mere size. It began by taking over large groups of State mortgages running into £50,0(X).000 or more, and might expand indefinitely beyond that. It was true the Minister said it was not intended to be a monopoly, but one object lie had in view was the. creation of a lending rate to which all existing lending agencies would have to conform or go out of business. *

The institution might become too large. The danger then Avas just as great Avhen*it was controlled by a private board as when it Avas a State department. In either case its downfall AA'Ould be a national disaster and the State and the taxpayer would have cut come to its aid. He did not think the Minister realised there Avere thousands of thrifty, self-reliant people whose small capital was the result of lifetimes of hard working and saving and avlio simply could not live on a rate of interest artificially forced doAvn by huge monopoly organisations, said Mr Stewart. Their plight Avas just as desperate as that of the farmer. It Avas true the producer .must be considered before the rentier, but if the thrifty never could find someone Avho Avas content to borroAv from the individual rather than from an inelastic central organisation they should be encouraged to make their bargain Avithout the lender being forced to accept a rate artificially dictated, and Avbich Avas too small for him to live on. For that reason if non-Government organisations Avere to do the iob he Avould prefer to see a number of those organisations geographically distributed so that if one or more of them fell it Avould not produce a national crisis or unnecessarily involve the general taxpayer. It Avould also have the advantage that applications for loans Avould receive quicker consideration and despatch.

, LIST OF 'PROPOSALS. Lest it might be said he bad confined himself to criticism, Avliat he thought should be done, continued Mr SteAvart, Avas:

(1) He agreed Avith the proposal of the monetary committee and the Budget to bring all Government lending departments under joint control to avoid duplication and competition. (2) Instead of creating one huge corporation he Avould prefer to see several independent mortgage corporations created on a decentralised'basis, with as little Government assistance to start Avith as need be,

(-3) If the Minister’s expert advisers were of the opinion that the creation of independent mortgage corporations Avaa not practical politics lie suggested the Minister should try out the fresh possibilities of bond issues by the mral advances branch of the State Advances Department. If the Minister found it avhs not possible more clearly to free the proposed corporation from political control and heavy and unknoAvn financial obligations then he suggested the Minister might more nearly attain his object by" revising the rural advances scheme, which Avas the result of AvorldAvide investigation hv his oavu Government and approved by Parliament. It would have the following adran-

-Lages. . (1) That no new corporation Avould be necessary and the State would not he nearly so deeply embroiled as it Avas in the proposed corporation. (2) That the existing staff of the State Advances Department would not need to be trans>ferr<s:l or distributed among other departments. (0) That giOiUty w6uld be raised in

the same Avav as the Minister nowproposed Avithout all fhe complications of the new organisation. (4; That the plan could he put in operation Avi th much greater expedition. The Dairy Commission Avas emphatic as to the immediate urgency of the problem. As far its the Minister had in view the avoiding of increases in the public debt and getting aAvav from political control lie was in sympathy Avith those objectives, said Mr SteAvart. The Dairy Commission shoAved that tho farmer would be benefited it be could get money at 3.V per cent., but the Minister calculated that it be raised inonev at 3.V per cent, the farmer must pay 4.J per'cent, at least. If that Avas so the gain to the farmer seemed negligible. It was true be would be reducing bis principal by instalments, if ho could make the payments, but it was generally agreed that during the first five years of an amortisation mortgage the danger of default in payment Avas greater than under a flat mortgage because of the added increment of the debt payment, wliieh was included in each instalment. In other words, payment by amortised loans aaus i o panacea for the farmers’ problems while loav prices ruled. Mr SteAvart thought it Avoid 1 be better, if necessary, to suspend instalments of principal under amortisation mortgages for the first few Afcsrs.