STATE MORTGAGES

Manawatu Standard, Volume LV, Issue 227, 23 August 1935, Page 10

STATE MORTGAGES

taking over of securities. CORPORATION’S PROCEDURE. Per Press Association. INVERCARGILL, Aug. 22. The Mortgage Corporation proposes to re!»ise within a few days, the prospectus lor its first issue of stock and bonds, and at the same time the rate of interest at which the corporation proposes to lend the capital so borrowed on mortgage securities will he announced. In making this statement to-night, the Acting-Minis-ter of Finance (Hon. A. Hamilton) said this lending rate would determine the ; extent of the concession available j under the Mortgage Corporation Act to mortgagors whose securities hail: been transferred from the State Advances Office to the corporation. | “The relevant part of this Act,” said Mr Hamilton, “provides that at any time within three years from August I last any such mortgagor has the right to obtain from the corporation a redutcion in the interest rate payable under his mortgage to the rate fixed by the corporation for its new business, provided that such mortgagor agrees to the capital amount secured by the mortgage at the date of tire variation being increased by 2 per cent, thereof, ns a contribution to the general reserve fund of the corporation, and that unless the mortgage is already in that form it be converted into a table mortgage. I would like to emphasise, however, that the additional capital which the corporation proposes to borrow is for new loans i uncler the provisions of the Act, and it is not involved in any way. with the transfer of the State Advances mortgages to the corporation. “As a mutter of fact, under the provisions of the Act any ascertained losses arising in respect of mortgagees j transferred from the State have to bo borne by the State and not by the coiporation. This is to say, all mortgages transferred from the State are guaranteed 100 per cent, by the State. “As consideration tor the State mortgages taken over, the Act requires the corporation to issue to the State stock up to an amount to be agreed upon and the difference between tne aggregate amount of mortgages transferred and the nominal value of the stock is to constitute a contingent liability of the corporation to the State.! “When these provisions were inserted in the Act it was realised that a straight-out sale of the mortgages to the corporation was not possible owing to the difficulty of arriving at a lair; valuation having regard to (a) the; uncertainty as to the prices of primary j products; and (b) the cost and time involved in making a valuation of all the individual securities. VALUE OF MORTGAGES. “Under tne provisions adopted the real value oi tne mortgage., will no aseertainued by experience over a period ol years during winch, it is tiopetl, economic conditions will become more stable, and cases oi moitgagors unable lo meet tneir commitments at me lower rate anticipated can be systematically overhauled ana the extent oi tire losses involved dehnitely lixeu. in me meantime tlie lact mat the State is to receive the net profits of tlie corporation after paying working expenses anti diviuends on capital win ensure trial, either in the lomi ot interest on stock or profits, the State will receive the lull net amount earned by the montages. "the amount of State Advances mortgages involved in tne transfer to the corporation is approximately £36,400,01)0, in consideration lor wnich it has been agreed that the corporation shall issue to the State- stock to the amount of approximately £29,400,000, the remaining £7,000,000 to rank as a contingent liability. ft should be emphasised that this £7,000,000 liability amounts to no more than a tentative provision for possible losses, and does not involve any immediate writing off at all so far as the Stale is concerned. Ascertained losses in respect of individual mortgages will be written off by the corporation against the contingent liability and, in turn, by the State. SAFEGUARDS PROVIDED.

“In agreeing to the amount being fixed at slightly less than 20 per cent, ol tlie mortgages,” said Mr Hamilton, “the Government is making adequate provision to safeguard the financial position of the Mortgage Corporation. From this aspect it may be pointed out that if the contingent liability fixed at the outset should by any chance prove to be insufficient to cover realised losses, the Act provides for the cancellation ol some of the stock retrospectively. This provision, coupled with the other one authorising the corporation to write oil realised losses against the State, protects the corporation absolutely. “From the point of view of the State, if the amount of contingent liability fixed is found to be more than necessary, additional stock may be issued. It is almost impossible to say what the ultimate amount of loss to the State will be, but the amount or that loss will not be increased through handing the mortgages over to the -Mortgage Corporation, and in the meantime it should not be assumed that the figure of £7,(X)0,0C0 is the measure of that loss. Io a consideiable extent any losses that may accrue will be met out ol the existing reserves of the State Advances Office. In conclusion, the Minister mentioned that the necessary steps had already been taken to hand over to the corporation local body securities to the amount of £2,750.010 to form the nucleus of the reserve fund in accordance with the provisions of the Act and the undertaking given in the 5 prospectus for the issue or tlie share capital of the Mortgage Corporation.