Mortgage Readjustment

Manawatu Times, Volume 60, Issue 31, 6 February 1935, Page 10

Mortgage Readjustment

Government’s Proposals

Examined

Repudiation of Contracts

Business-men Suggest: Alternatives

The conviction that it is possible to evolve a scheme for the final adjustment of mortgages withput creating the proposed. Mortgage Corporation is expressed by the Associated Chambers of Comfuerce in a statement issued on Monday. • The statement embodies the findings of a national confer- * ynce of commercial and financial interests which was assembled under the auspices of the Associated of Commerce, and which through a special committee made an exhaustive investigation Government.’s proposals for the establishment of a national mortgage corporation and for the • fehabilitation of farmers’'finances.

The particular interests represented at the conference were the Associated Chambers of Commerce, the Associated Banks, the New Zealand life insurance offices, the New, Zealand Law Society, the Stock Agents’ Association, the New Zealand Fire and Underwriters’ Council, the New Zealand Investors’ Protection Association, the Building Societies’ Association, and investment companies, and the statement which has been issued is a unanimous expression of their views. The committee regards the rehabilitation proposals as “unsound, unjust, and dangerous,” and believes that justice can be done to all parties concerned, including the farmer mortgagor, “without wholesale repudiation of contracts, and without the unjust discrimination against one class of the community—the farmers’ creditors.”

As an alternative to the Government’s proposals it is suggested that the present relief legisla-tion-lie extended to December 31, 1939, and that the existing adjustment commissions be reconstituted along the lines of the proposed special Coui't of Review vdth an' independent chairman and two associate members—one representing mortgagors’ interests generally and the other representing mortgagees “generally—thus increasing public confidence in these tribunals. So far as State mortgages are concerned, the committee has suggested the creation of boards with full power to effect settlement with these mortgagors. Such settlement of State mortgages would be at the expense of the whole community, and would not prejudicially affect any particular section

LOW PBICES. ONLY ONE PACTOR. BORROWING AND SPENDING. The committee points out that low prices are only one factor in the present position of the farmers and contends that probably the main reason for the plight of many people in New Zealand .to-day is over-borrowing and over-spending. It is held that the Government's remedy would not stabilise mortgage interest rates at a low figure and that there is still a danger of political influences being used on behalf of mortgagors. "The Government’s scheme for the reorganisation of mortgage finance contains two proposals, states the Teport. First, it is proposed to establish a National Mortgage Corporation which will alter the present system of rural and urban finance, and second, it is proposed to rehabilitate farmers’ ance by readjusting present mortgages to new and undecided levels of land and produce values. The two proposals are not inter-dependent and should not be confused. The committee is convinced ,that it is possible to evolve a scheme for tho final adjustment of existing mortgages without creating thei proposed Mortgage Corporation. "The scheme has been presented by tile Minister of Finance in such a manner as to suggest the two proposals are interlocked. This is definitely not so.

gage interest rates at a low figure. The committee deals further wdtli this matter later in this memorandum.

that Mortgage Corporation bonds will carry interest at approximately the same rato as better-class-local body securities —say, to-day, 3J per cent. If the Mortgage Corporation can issue bonds on a 3i per cent, basis, the committee is satisfied that it will require to charge its farmer mortgagors 4£ per cent, interest or moro. This allows I per cent, to cover administrative costs and contingencies, and large-scale lenders have found this scarcely adequate. In addition, the mortgagors will have to pay tho annual reduction on account of principal and the proportionate amount of the contributions to the reserve fund. "Even if the bonds could be sold to the public on a 3 per cent, basis, which is lower than the average market yield of Government' stocks to-day, it is very doubtful if the Corporation could relend to its borrowers at substantially less than 4J per cent. Tho committee would point out that on this basis the amount to be paid half-yearly by the borrower wolud be slightly higher than tho half-yearly payment under tho original State Advances tables.

"(b) With certain qualifications mentioned below, there is much'to bo said in favour of an amalgamation of the Crown’s mortgage lending activities. In the past thero have been cases of departments competing in 'lending, the one with the other. "(c) The committee deals separately with the rehabilitation proposals. In the view tho committee has taken there will be no necessity to create any new institution. If settlements are arranged between mortgagors and mortgagees on a sound basis there is to-day, in the opinion of the committee, and will continue to be, ample facilities for the necessary refinancing. ‘ ‘ (d) Undoubtedly attempts are made at the present time to bring political influence to bear on the Government lending departments. In the opinion of the committee the introduction of a so-called independent board of directors will not minimise improper political pressure on the part of mortgagors. On the contrary, the aggregation of mortgages into one channel will greatly facilitate and accentuate political pressure from mortgagors. ;

"At the present time there is, the committee is satisfied, a largo amount of money available for investment on mortgage at 4£ per cent, per annum and lower. Successful Issues of Bonds. "The committee is of opinion that the bonds -will not find a ready sale at a low rate of interest. Unless the bonds can bo sold at a low interest rate the Corporation cannot lend at a low rato and prosper. "Tho committee is very much afraid that the Corporation will inevitably be unwieldy in size and impossible of sound economic management. We already have the example of one institution whoso very size has made it unwieldy and difficult of management. It is very doubtful whether there is available the personnel with either the necessary vision or the necessary practical experience to handle tho huge sums that will in duo course be at the disposal of this giant Corporation. "The committeo understands that approximately £50,000,000 face value of mortgages will be taken over. Executive officers capable of handling such a huge business are not easily found. The committee would point out that the Corporation will, from its inception, be one of the largest lending institutions in the Dominion. State Guarantee. "In his pamphlet, Mr. Coates says': ‘Substantial objections can be raised to the State taking over an ever-increas-ing amount of mortgages, while the reactions from an increasing public debt must always hamper and limit . the operations of the office,’ The committeo considered this question of such importance that it asked for, and was given, a definite assurance that neither principal nor interest of the bonds would be guaranteed by the State. Financial Outlook. " Interest rates will not always remain low, and the committee thinks that those responsible for the administration of this new institution, if formed, must be particularly on their guard against having to refinance their bond issues at high interest rates, while the Corporation still has a largo proportion of its funds locked up in longterm advances at low rates. "Fluctuations in interest rates will automatically be reflected in tho Stock Exchange prices of tho Corporation’s bonds, certainly to tho embarrassment of the bondholders and possibly also to the embarrassment of the Corporation,

TABLE MORTGAGES. THE ABILITY TO PAY. ■ REDUCTION OP DEBTS. "Much criticism has, in Mr. Coates’ pamphlet, been levelled at the existing mortgage system, and the advantages have been stressed of long-term table mortgages. The advocates of this system have apparently overlooked the following points:— (a) The mortgagor who has, in recent years, been unable to pay his interest in full could not have paid such interest plus a reduction in capital indebtedness;

The Minister informed the committed - that two entirely separate Bills are to be presented to Parliament, and the committee therefore deals separately with the two proposals. "The committee urges that anyone considering the Minister's proposals should divorce the Mortgage Corporation from any scheme for the rehabilitation of farmers’ finance. "The committee has had the advantage of discussions with the Minister of Pinance and his staff, and its comments are based on the Minister’s pamphlet of November 30, 1934, and on the information which was afforded it at the interviews it had with the Minister!

(b) It has been, and will continue to be, impossible to prevent mortgagors borrowing money on second mortgage to meet first mortgage interest and repayments of first mortgage principal. "A substantial part of the mortgage debt in the Dominion is already on a table basis, and it has for long been possible for the borrower who 'wished to raise a mortgage on a table basis to do so. Wo think, on investigation, it would probably be found that in the majority of cases , where long-term table mortgages have been entered into that either the property has been sold before the expiration of tho term, or alterations 'and improvements have so changed conditions that the property has had to bo refinanced before the expiry of the term. There are advantages and disadvantages to the borrower under every system of borrowing, and many mortgagors have deliberately, and for sound reasons, adopted the fiat mortgage basis. "Wo freely admit that had borrowers in the past made more extensive use of the table mortgage system, many who aro to-day in difficulties would have been in a better position.

for New Institution,

"Iw The committee believes, and has urged on Mr. Coates, that there are no producers to-day who are efficient and competent men, and who have sufficient equity in their properties, who cannot borrow, at very low, rates of interest, whatever money they’ can use profitably in .their businesses.

"Mr. Coates’ pamphlet, advances as the reason for the present position of the producers, the unparalleled clfop in the world values of primary produce. So far as New Zealand is concerned, this is only half the stoffy. Admittedly low prices are a factor. Probably the main reason for the difficult position of many, people in New Zealand to-day is over-borrowing and over-spending, not only by individuals, but by-all--classes of the community, including local bodies and the Government. When, as a retmedy for thiV position, it is proposed to increase facilities for borrowing, the public must naturally be alarmed. The remedy would seem to be to restrict rather than to expand borrowing.

The chief fault of the existing mortgage practice lies not in the system itself, but in the fact (admitted in the Minister’s pamphlet) that by far the majority of borrowers never dreamt in prosperous times of reducing their mortgage indebtedness, but were content simply to spend (and in some cases squander) handsome earnings, and trust to the refinancing of the whole of their mortgage intebtedness when it became due. INTEREST RATES. TEAR OE SPECULATION. THE ROLE OF THE STATE. "In his pamphlet, Mr. Coates summarises his expectations from the establishment of the Corporation in the following words: ‘lt is hoped that the operations of the Corporation will result in stabilising mortgago rates of interest at lower levels’ and a section of the farming community is anticipating a substantial reduction in the interest rates on farm mortgages. The committee is unable to see how this can be effected. The pamphlet anticipates

Arguments Refuted.

"The following reasons have been advanced as justifying the creation of a new institution: —

"(a) The expectation that the Mortgage Corporation will result in a steady flow of capital towards primary industries at substantially reduced rates of interest.

"Cheap” Mortgago Money. "The more successful the Corporation is in raising cheap money from tho public and lending it to farmers, the greater will be the very grave risk of an inflationary increase in land values, and an unjustified speculative boom in land. Tho greatest care should bo taken not. to increase artificially the current market price of land.” RESERVE FUND. STRONG OBJECTIONS. ( BONDS AND SHARES. "The committee is by no means satisfied tviUj the provision for the. srea-

"(b) The new instution will provide for the amalgamation'of the mortgage lending activities of Government Departments. "(c) The necessity of having some lender able and willing to provide the long-term finance required to carry out the settlements contemplated by the rehabilitation legislation. "(d) The elimination of political pressure by State.mortgagors. "With regard to these views, the committee makes the following comments: —

"(a) The committee does not believe that the Mortgage Corporation will be able, permanently, j,o stabilise mort-

tion of a reserve fund. As tho committee understands the position, the Crown proposes to lond tho Corporation £2,570,000 worth of local body debentures. Theso debentures will not be tho absolute property of the Corporation. Not'only will the interest payable in respect of these debentures continue to be paid to tho Crown, but when the contributions from borrowers of the Corporation have wuilt up a reserve fund amounting to 10 per cent, of advances made by the Corporation, these debentures must bo returned by the Corporation to tho Crown. An Insurance Fund. "In these circumstances the committee is of opinion that these local body debentures should not be shown on tho Corporation's balance-sheet as a free asset; they really constitute an insurance fund to indemnify (until the Corporation’s reserve is built up to a figure which tho Minister considers adequate for this purpose) tho bondholders and shareholders of the Corporation against having to bear losses made by the Corporation in its early stages. "While these debentures do, in some moasure, constitute a reserve fund (which we prefer to describe as an insurance fund) and consequently may give more confidence to the investing public, the committee is very strongly of opinion that to include this amount of £2,570,000 in the computation of , the maximum permissible bond issue, would be wrong in principle and unsound in practice. "As regards the reserve fund proper, it is apparently not intended that tho borrower’s contribution of 2 per cent, will be paid in cash, but that it will be added to the mortgage to bo paid oil' With interest over tho period of the loan. It seems clear that in time of stress this nucleus of the reserve fund would definitely bo not liquid and would therefore fail to meet the very first requirement of an adequate reserve fund. Capital and Reserve. " ‘Mortgage bond’ business is not a novelty, oven in New Zealand. In Tecent years the Bank of New Zealand added to its activities a long-term mortgage department. Overseas, and particularly on tho Continent, ‘mortgage bond’ associations have been in existence for many years. "The proportion of bonds to share capital, plus reserves has, following on years of experience become stereotyped. We understand that with all the old established ‘mortgage bond’ institutions on the Continent and in America, the maximum bond issue varies in proportions from 13 to .1 to 15 to 1.

"Tho pamphlet proposes that the Corporation may issuo bonds to tho extent of twenty times its capital and reserve. This is a larger proportion than the committee considers wise and prudent, and it is a long way removed from British precedent. "Wo would point out that as recently as eight years ago our own Legislature saw fit to limit the bond-issuing authority of the Bank of New Zealand to three times tho amount of tho relative capital (see Section 19, Bank of New Zealand Act, 192 G), and this was done, although the bank had, apart from its long-term mortgage department, very substantial resources. Crown Prerogative.

"It occurred to the committee that so long as the Crown was the holder of bonds, or was otherwise a creditor of the Mortgage Corporation, tho Crown might exercise its prerogative in a winding-up of the Corporation to the wrclusion of other bondholders, creditors, and shareholders. We have, however, been assured by the Minister that the legislation will provide that the Crown’s prerogative will be abrogated and that the Crown will rank as a creditor of the Corporation pari passu with other creditors of the same class. This is essential before the bonds can have any hope of commanding the confidence of the investing public.”

THE DIRECTORATE. STATE APPOINTEES. ‘ ‘ TRUSTEE INVESTMENTS. ’ ’ "In the pamphlet it is stated that four out of the seven directors of the Corporation shall always bo State appointees, and in addition that there should be a Treasury representative ex officio on the board. "In an institution such as this it is only reasonable that the directorate should comprise representatives both of the shareholders and of the bondholders. When the Corporation commences business the State will be a very large bondholder —and on that ground it is reasonable for the State to nominate a substantial proportion of the directors. The proposals contemplate, however, that eventually the State may hold no bonds and that these will all be in the hands of the investing public. The committeo suggested that State appointments should be diminished progressively as the State disposes of its Mortgago Corporation bonds, and should ceaso altogether when tho State has disposed of the whole of its holding.

"The Minister stated that a system of election by, possibly, thousands of bondholders w'kose names and addresses were not on record presented such difficulties that it was not possible to deyiso a workable scheme. That such difficulties are insuperable we are unable to agree. The Minister conceded that the bondholders should have representation on the board and Las suggested that while the nomination should remain in the hands of the Crown, a certain proportion of the board members should be bondholders. Nomination by the Crown, in our opinion, would be quite unsatisfactory, and we repeat that there are no insuperable difficulties in devising a system of election by bondholders. Bonds as Trustee Securities. "In his pamphlet, Mr.. Coates writes: ‘The bonds will bo trustee investments and will fully merit that status.’ We are unable to agree with that assertion. "(a) The present Trustee A.ct empowers trustees to advance against freehold land up to two-thirds of the value of the land, .In, Bi&ctke Jttanj.

trustees do not lend up to tho full statutory authority. Even under this provision, trusteos have not always succeeded in preserving trust capital. How can bonds representing advances up to 70 per cent, of the value of tlio mortgaged property be regarded as sound trustee securities?

"(b) According to the pamphlet the Corporation has authority also to lond (and that -without limit) against security over stocks and chattels. Such loans, of course, never have been an authorised trustee investment.

"If it is seriously intended to uso this power tho value of the bonds will be correspondingly discounted by investors, and they should most certainly not be designated ‘trustee’ security. Lending money on the security of stock and chattels is a highly specialised class of business and one of the most difficult and complicated forms of mortgage lending, and it should be left to those who have the facilities for dealings with their borrowers and securities, and who have bought their experience in such dealings. Stock and Chattels. "Tho committee was informed that it was not intended to lend on stock and chattels except to the Corporation’s own mortgagors whoso lands wore mortgaged to it. The committee would go further. It holds the opinion very strongly that this form of lending should not be within the provinco of tho Corporation, except that tho Corporation should have the power to take stock and chattels securities from its own mortgagors who are in default. "(c) If bonds are to qualify as a trustee investment, then

"(a) There should be a fixed period for redemption. The pamphlet was silent on this point, but the committee was informed that the bonds would not bo perpetual, and that probably they would be issued with varying maturity dates. "(b) The bonds should remain relatively stable in value and should be readily realisable in emergency. It seems likely that tho bonds will fluctuate in value with varying interest rates, particularly after capital in tho country is freed, and confidence is restored.

“In the opinion oi' the committee these bonds will not find favour as trustee investments, liven if the suggestions of the committee, above, are met, mortgages representing advances Up to the very high figure of 70 per cent, of the value of the security, even with the additional protection afforded by the capital and reserves of the Corporation (equivalent to a comparatively small percentage of the Corporation's liabilities) will not be regarded by trustees as gilt-edged securities. Valuations. The committee is gravely concerned at the difficulties —difficulties which it regards as insuperable—of creating a competent staff to deal with valuations. Even under our present system, with its great advantages of reciprocal personal knowledge of and contact between borrower and lender, valuation is the most difficult problem. We have been struggling for years to try to find a really sound basis of valuation, but even on the small scale of private operations these is always a difficulty about the basis of valuation. The committee doubts whether the Corporation will be able to secure a sufficient and efficient staff of valuers to deal with the volume of business that will fall On it from the start. Hopelessly interlocked with the question of a basis for valuation is the question of the personal efficiency of the individual mortgagor. “The pamphlet proposes that valuations be based on actual production results. If everyone were equally competent then nothing more -would need to be said. It is a commonplace that one farmer, owing to a superior ability, can make a comfortable living on a farm on which many another would starve. “Actual production is not the only lest to bo applied. Tho valuer must take into account the personal ability of each mortgagor and the quality of the stock at his disposal. The committee doubts whether any system of valuation can be devised which will adequately discriminate between the competent and the incompetent farmer. The best judge of a farmer's competence is the existing mortgagee, or his representatives, who have an intimate experience of the farmer -’s working of his property and of his general character and ability. Personnel of Directorate. “If the legislation is going to be enacted, the committee calls attention to the imperative need for the Government to obtain tho best possible men not only as directors of the Corporation but as its chief executive officers.

If the general public is to have any confidence in the proposals, then it must be satisfied that the administrators of the scheme are men of integrity, thoroughly capable by reason of previous training of taking an impartial and eniightened view cf the matters coming before them, and not having any personal interest.

“A very grave difficulty arises in connection with the taking over of the securities of the existing Government lending departments. At the outset, the whole board of the Corporation will be appointed by the State, and that board will have to negotiate the contract to bo made with the State in regard to the taking over of these securities. The State will, in .effect, therefore, be both vender and purchaser. Whatever the personal qualification of the board members, the conflict of interest makes absolutely independent judgment impossible. Suspense Account.

'■'The very involved' proposal under which the Corporation will take over all the current mortgages of these Government Departments at their nominal amounts, giving bonds to tho State ‘for a safe proportion’ and ‘accepting contingent liability’ for the remainder, appears to the committee to be merely postponing the issue. Further, the committee is in some doubt as to how a ‘safe proportion’ is to be fixed. ■ -“XiU this ‘sale proportion’ be fixed.

by the board appointed by the State? Why bury tho losses of existing State loading departments for many years? What effect will Euch an arrangement have on tho appraisement by investors of tho bonds of the Mortgage Corporation? What will bo tho position if events provo that too high a proportion of the mortgages has been taken over* by the Corporation as ‘safe'? Prom tho phraseology of Mr Coates’s pamphlet, the committee judges that the intention is that tho initial amount of this suspense account will constitute the State’s maximum contingent liability. The committee is very strongly of opinion that the State’s responsibility in regard to existing mortgages should not be qualified in any way whatever, and that any and all losses arising from these mortgages must be borne by the State. “Unless the securities it is proposed the Corporation shall take over from the State can finally be valued by an independent tribunal at the time of taking over, and on a basis prejudicial neither to the State nor to tho Corporation, tho function of tho Corporation in regard to these securities should be that of an administrator and not that of a purchaser. The committee is strongly of opinion that this whole proposal of a suspense account is unsound.”

SUMMARY OF VIEWS ALTERNATIVE WAY STATE MORTGAGES “It will be seen from the above that the committee is not convinced of the necessity for the establishment of a semi-State Mortgage Corporation, and that it is not sanguine of its success if it be established on the lines proposed. “Indeed, tho committee regards the proposals not only as unnecessary, but as unsound and dangerous. It submits the following alternative suggestions: — “Tho committee is of opinion that under existing legislation tho difficulties between private mortgagees and their mortgagors are in courso of settlement. Although in many cases these settlements are stated to be temporary only, the committee believes that final settlement will in due course eventuate on the lines of, and as an outcome of, temporary settlement. “The position between the State and its mortgagors is entirely different, and the committee therefore thinks that private mortgages and State mortgages should be dealt with separately. State Administration. “To secure uniformity of administration, eliminate inter-departmental competition, and also to eliminate political interference, if that be possible, the committee suggests the amalgamation of the mortgage lending activities of the various departments, and the control of those activities by an independent board. “In view of the large sums involved, tho committee Is of the opinion tht the best results would be obtained if more than one board were created. For this purpose the Dominion might bo divided into districts, each with its own board, tho districts being so arranged that each board would have approximately the same amount of mortgages under its control. “To secure uniformity, the chairmen of all these boards should form an advisory committee for tho whole scheme. If the principle of this suggestion be accepted, there will be no necessity for the elaborate process of the new board taking over mortgages and issuing debentures. The boards should administer the existing mortgages, answering to the respective departments in the same way as the Public Trustee handles his mortgage investments which arol outside the Common lund. “With regard to new business, the committee contemplates that a department having funds for investment on mortgage would invest through the boards—the department not coming into contact in any way with any prospective borrower. “The foregoing suggestions aro m such form that all departmental mortgages can be taken over. “The boards should be given full powers (comparable with those possessed by individual mortgagees; of varying mortgage contracts by mutual arrangement with respective mortgagors. “In these proposals the committee contemplates achieving tho same result as is mentioned In Mr Coates’s pamphlet. The Minister’s proposal was that the bonds allotted to the State would be sold, and the proceeds used to repay the loans raised, for instance, by the Stato Advances Department. The committee contemplates that the repayments of principal received by. the boards in respect of State Advances mortgages would be applied in repaying the loans raised by that Department, so that eventually this, liability would be extinguished. On the other hand, other departments are,, aand will be, continuing concerns, and will have from time to time further funds for investment. Other Mortgages. “The committee has already expressed the opinion that necessary adjustments between private mortgagees and their mortgagors are proceeding satisfactorily under existing machinery. All that is necessary to complete the programme of adjustment is some modification of the existing machinery. The committee sets this out later in dealing with the rehabilitation proposals. “The committee is satisfied that there is ample finance available at cheap rates to effect the refinancing of existing mortgages as and when this becomes necessary and advisable. If it should be found that there are insufficient facilities at present _ for longterm lending on a table basis, the committee considers the proper course is to encourage the formation of new private institutions of a medium size on a district basis and free of Governmental control. “The committee will be glad, if the Goverenment so wishes, to submit proposals in detail for legislation having as its object the encouragement of such institutions. Tho committee appreciates the fact that there are certain disadvantages attaching to the formation, under tho Companies Act, 1933, of institutions such as it contemplates, and that some enabling legislation will bo necessary in this connection.

FARMERS’ FINANCE EFFICIENCY QUESTION SETTLEMENT OE CLAIMS ‘On tho question of the rehabilitation of farmers’ finance the committee reiterates its view that it is necessary to consider the rehabilitation proposals as separate and distinct from the Mortgage Corporation proposals. “Mr Coates, in his pamphlet, stresses the danger of competent farmers, who through no fault of their own have got into difficulties, being dispossessed of the land into which they have put their life’s savings. We believe that the risk of a really competent and efficient producer (even if he actually has little or no present equity in his property) being put off his property, i 3 infinitesimal. The best interests of the mortgagee demand that such a man should be kept on his property, as the mortgagee would be in a worse position if a good farmer had to leave his farm. “As regards incompetent farmers, it is very doubtful whether it is in the interests of the community generally, of the farmers themselves, or of their mortgagees, tnat they should remain on their farms producing economically. Losses aand Profits “This whole section of Mr. Coates’ pamphlet appears to be based on the novel view that tho relationship between present mortgagees and borrowers is one of partnership in sharing losses but not in sharing profits. Many farmers have succeeded in borrowing tho full value, and more than the full value, of their properties. We very much doubt if it be possible to create machinery which will distinguish between those who are worthy of help and those who have arrived in their present situation through incompetence, mismanagement, and extravagance. “While final adjustment of the unsatisfactory mortgage position to-day is desirable, the committee has grave doubts as to whether final equitable adjustment is feasible. If wo could regard tho prices of primary products as stabilised, an equitable scheme for final adjustment could be devised. Primary products, however, have always been subject to violent and unexpected fluctuations. It is impossible to predict price levels of primary produce, even a few months, let alone a few years, ahead. An adjustment which might appear equitable on to-day’s values might prove to be grossly inequitable in even so short a period as twelves months.

Existing Legislation. ‘•ln the Bankruptcy Act there is on the Statute Book adequate machinery for the settlement of creditors’ claims if a person be insolvent. “The proper course for a debtor who is- unable to meet his obligations in full is to effect a compromise with his creditors by mutual arrangement, and failing his being able to do so, to invoke- the protection of the Bankruptcy Act. It is the considered opinion of the committee that if the present Mortgagor’s Relief Act were repealed today, the number of farmers who would find it necessary to -file in bankruptcy would be very few; not only so, but of those who did file, few would be dispossessed of their farms. The conscientious, capable farmer would bo almost invariably reinstated by his first mortgagee on the property the moment he got his discharge. “Assuming .that there is some real necessity for further legislation, the committee considers the proposals should not be limited to one section of the community, namely, the farmers. If there be any reason to make special concessions to mortgagors, the committee cannot see any logical reason for discriminating between the farmer mortgagor and other mortgagors. Why should not similar concessions be made to struggling country storekeepers who have dono their share towards keeping the farmer on tho land, and whose difficulties arc largely due to the inability of farmer customers to pay for goods bought? In the opinion of the committee, if the proposals go through in their present form, they will involve the ultimate bankruptcy of a large number of country storekeepers. Equality of Sacrifice, “If it be necessary that sacrifice should be made to maintain the farming industry, then it should be national and should be shared by the whole community. Under the rehabilitation proposals as explained in Mr. Coates’ pamphlet, sacrifice is demanded of one class of the community only, namely, the farmers’ creditors. The committee would stress that the sacrifice will fall not only on mortgagees of land, stock, and chattels, but also on all the unsecured creditors of the farmers.

“This principle is unsound and inequitable. Hitherto the special assistance extended to the farming community has been at the expense of the community at large, and if special further assistance should be given it should not bo at tho expense of the class which has already suffered great losses in the financing of the man on the land. “The proposal that one class of the community (the farmers’ creditors) should bear the cost of the rehabilitation of tho farming industry is inequitable and unjust. The committee believes that such procedure would have farreaching effects and would cause widespread distress among many classes, as well as among mortgagees. In the long run the effect may very well be further to damage farm credit and ultimately injure rather than assist those whom the proposals are designed to benefit.

Astounding Proposal,

The proposal that an insolvent person should be allowed to retain 20 per cent, of the value of his assets is an astounding one. If a trader or a professional man has, through misfortune, to invoke the protection of,the Bankruptcy Act, he is entitled to retain furniture, clothing, and tools of trade to a value not exceeding £SO. On the other hand, an insolvent farmer whose assets are valued at, say, £IOO,OOO, is to be allowed to retain £20,000 at the expense of his creditors.

“Why should the farmer be arbitrarily allotted (at the expense of his creditors, of whom the State may be one) a. 20 per cent, equity in his property, whether or not such equity ex-

ists to-day? Is not the competent tradesman or shopkeeper, or any other class of competent worker who has met misfortune and is to-day insolvent, also entitled to a similar concession?

“The committee thinks that the suggestion to allot arbitrarily to a farmer an equity in his property at the expense of his. mortgagees and creditors cannot be justified, but if any proposal of this nature is given effect to, then the amount of such equity should be determined by an impartial tribune and should be subject to a modest maximum limit not based on a percentage of a valuation of assets. What a farce it would be if a farmer with £IO,OOO assets, and liabilities exceeding those assets, were allotted ,at the expense of his creditors, an equity of £20,000 a fortune to most people —while a storekeeper with assets of £SOOO and liabilities exceeding those assets, has to seek the protection of the Bankruptcy Act, and is allotted a maximum of £SO in personal effects-and tools of trade.

Conflicting Interests. “The pamphlet is exceedingly vague on the question of the relative rights of various classes of creditors. In the average case which will come before tho proposed tribunal, it will be found that the mortgagee owns: Land, live stock, plant and implements, and other assets. His creditors may be classified as follows: Mortgagee or mortgagees of land; mortgagee of chattels, preferential creditors (for instance, wages and rent), and ordinary unsecured creditors. Under the bankruptcy law the relative rights of these different classes of creditors are clearly defined. Mr Coates’s pamphlet does not make clear what position is contemplated under the proposed legislation. “The committee urges that the established priorities and relative rights of creditors bo left untouched. Assistance From Corporation. “The committee is very strongly of tho opinion that the proposal that the Mortgage Corporation be authorised .to take over, at its discretion, existing mortgages, financing these at a low rate of interest, up to an amount not exceeding 80 per cent, of the security as revalued, the State accepting a contingent liability for one-eighth of such mortgage, is utterly and totally unsound. “In the section of this memorandum dealing with the Mortgage Corporation, the committee has expressed the strong opinion, which it now wishes to emphasise, that any mortgages taken over by the Corporation should be taken over after revaluation on a sound lending basis without contingent liability, either on the part of the Corporation or any other party. Mr. Coates’ pamphlet left in doubt the question whether .the private mortgagee whose mortgage might be taken over by tho Mortgage Corporation would be paid by the Corporation in cash or in bonds. * Mr Coates has assured the committee that in such cases the mortgagees will be paid in cash. The committee urges further that in no case should the Mprtgago Corporation take over private mortgages without the prior consent of the Mortgagee.

COURT OF REVIEW IMPORTANT DUTIES THE RIGHT OF APPEAL “The pamphlet describes a special ‘Court of Review.’ This special Court of Review will have wide powers and most important functions. The chairman should be one fitted by training and expeerience to discharge judicial duties, and should be possessed of the very highest quaalifications. The work of this Court will be so onerous, and the possibility of miscarriage of justice will be so great, that the committee suggests there should be some right of appeal from the decisions of this Court, The committee was assured that the Government would have no objection to the principle of appeal if the necessary machinery were devised. Not only is the committee convinced that a right of appeal can easily be-provid-ed, but it is fully convinced that such right, is absolutely essential to prevent grave injustice. The committee strongly urges that this legislation, if enacted, should make provision for appeal from the Court of Review to the Court of Appeal. The only satisfactory appellate tribunal that can ensure uniformity' and secure public confidence is our existing Court of Appeal. Powers of Court “Mr Coates’s pamphlet states — •The Court will have power to refuse a stay order in certain cases.’ The committee urges that this provision should not be permissive, but should be absolutely mandatory. A stay order should never, in any circumstances, be allowed where the position of a farmer is hopeless, or where a fanner is incompetent or of doubtful -character, or whoso relations with existing mortgagees have not been straightforward and honourable. There should be the most specific rules laid down for the guidance of the Court in this matter. Public interest, as well as the interest'of mortgagees, demands that mortgagors disqualified as mentioned above should be definitely excluded from any benefits under the legislation. “The committee dislikes the principle of setting up a Court without at the same time prescribing a definite code of rules under which it is -to operate. ‘ ; ' Injustice to Mortgagees. “ This legislation in tho form now proposed must result in grave injustice to many small private mortgagees who are depending for their subsistence on income derived from mortgage investments. The committee urges that the legislation should authorise the ‘Court of Review,’ when investigating the affairs of a mortgagor, to investigate a plea of hardship by tho mortgagee, and if it considers it equitable, to order accordingly. “Mr Coates, in his pamphlet, .states: ‘The .ideal method of settlement of.a mortgagor’s difficulties is a voluntary arrangement between the parties concerned without any intervention at all, and every encouragement- should bo given to the making of such,-- arrangements.’ “The committee urges most strongly that it should be mandatory upon the ‘Court of Review’ when considering any case brought before it, to have regard to any modification of the originei

contract which has since January 1, 1960, been entered into by the mortgagor and mortgagee by mutual arrangement, and that it should T?° permitted to disturb such modified contract only if it bo clearly shown to be inequitable. Unless some such provision is made, the legislation, if onacted, instead of encouraging voluntary arrangements, may only tend to upset existing voluntary arrangements. Stay Orders

•'ln the opinion of the committee the provisions as outlined in Mf Coates’ pamphlet are unnecessarily complicated. It was apparently felt by tho Minister that A period of five years was not long enough to furnish a ‘Court of Review’ with sufficient

evidence to enable it to effect a satisfactory settlement. The committee has already indicated its' unqualified con-

demnation of the proposal to present an arbitrary equity in his proporty to a mortgagor at tho expense of his mortgagee. If, however, tho Legislature determines to adopt this grossly unfair* proposal, the committee urges that the period be extended to eight years, the settlement then decreed to be final'as regards both parties. This suggestion of an eight-year period eliminates the particularly objectionable proposal that the mortgagor should get 50 per cent, of the additional value accruing in the second period. Supervisory Period

"The pamphlet is silent on the question of what is to happen if the mortgagor effects a sale of t>he mortgaged property during the period of supervision. The rehabilitation proposals are, based on the assumption that it is in the best interests of the commun-

ity that the farmer should be kept on his farm. If of his own accord he disf poses of the property during the period a ‘stay order’ is in force, thon it is the considered opinion of the commit* tee that the stay order should ceaso to operate, and the ordinary processes of law should be allowed to take their course. The farmer, in such case, should be permitted to take only the surplus left after all his creditors have been paid in full. It nlay be noted incidentally that a provision of this nature would place a brake on land transfers and discourage any tendency towards land speculation.”

"JUSTICE CAN BE DONE” ALTERNATIVE PLAN RELIEF LEGISLATION “It wilt be understood from the above that the committee regards the rehabilitation proposals as unsound, unjust and dangerous. It bclioves that iustico can be done to all parties concerned, including the farmer mortgagor, without wholesale repudiation of contracts', and without the unjust discrimination, against one class of.the community —the farmers’ creditors. “Again the problem resolves itself into two distinct —State mortgages and private mortgages. The committee makes the following constructive suggestions in lieu of the Minister’s proposals:; — State Mortgages "So far as mortgagors to the various State departments are concerned, the committee has suggested in this memorandum the creation of boards with full power to effect settlement with these mortgagors.. Such settlement would be at the expenso of the whole community, and would not prejudicially affect any particular section Private Mortgages “It is, in the opinion of the committee, common ground that the present relief legislation is not altogether satisfactory. From the viewpoint of the mortgagor, the relief afforded is merely temporary by way of suspending payments with a power of writingoff, limited to arrears of interest. Mortgagees, on the other hand, complain, and with some reason, that there is no uniformity of practice. Cases apparently similar , are dealt with in varying ways in different districts. Much as the committeo dislikes any proposal which validates repudiation of a contract, it TecogniseS that there is some necessity for amendment of the present legislation. It urges that, having instituted a system of dealing with disputes between mortgagors and mortgagees, the Government should, if that system has proved somewhat unsatisfactory, endeavour to improve upon it rather than to scrap it and substitute an entirely new and untried system.

"The committee therefore suggests - in respect of private mortgages, as s'foilows: — erf;

ff ‘‘(a) That orders, under the present legislation may be made to be operative until December 31, 1939. (The present Act expires on December 31, -1935, and orders may be made under it having a currency of two years.) The proposal of tho committee therefore means an extension of two years.

"(b) That the existing Adjustment Commissions be reconstituted on the lines of the proposed special Court of lie view, that is, an independent chairman and two associate members —one representing mortgagors’ interests generally and one representing mortgagees generally —thus increasing public confidence in these tribunals.

"(c) That it be laid down distinctly that the Judge (or Magistrate) is bound to hear and consider evidence 'offered by either party which was not available at the hearing before the Commission, and if necessary refer the case back to the Commission.

“(d) That a full right of appeal to the Court of Appeal be conferred. This is essential if public confidence in mortgage lending is to be restored. "The committee had hoped that before completing the preparation of this statemont, advance copies of the legislation would have been available to : it. Unfortunately, such “ drafts havo not been available, and the foregoing comments are therefore; • necessarily based - on tho information given in the ; pamphlet by the Minister of finance, - together with such further information as was afforded the committee in its 'conferences with the Minister and his staff.

i * : - ‘'The committee urges that the Minister circulate the draft of the proposed legislation at the earliest possible moment, to give ample time for

public consideration before its intro duction to Parliament.

"The committee expresses its willingness to co-operate with the Government in further consideration of alternative measures for the solution of the admittedly difficult problems of rural finance.”

Principle Approved DISTRUST OF CONTROL Per Press Association. CHRISTCHURCH, Rob. ,5. The mortgage finance proposals of the Government were the subject of a long report by a special committee, which was adopted by the Canterbury Chamber of Commerce last night. In summarising its conclusions th'c committee stated: —

‘‘The committee approves the broad principle of the proposals ihat the State shall make it possible for private enterprise on sound business lines to provide long-term mortgage finance as cheaply as possible and that a merger of three Government lending departments shall take place under the same organisation. It also approves of the plans being organised for the gradual liquidation of that farm finance which is frozen, so long as fairness to those who have paramount legal rights is recognised and maintained. It considers, however, that these two conditions of soundness and fairness should be firmly established by the Government calling to its aid in drafting the proposed legislation those whose .experience and training qualify them for the task.” The committee expresses in several places in the report distrust of any. proposals to give the Government or the Minister of Finance control over the policy or funds of the Corporation.