The Mortgage Corporation

Manawatu Times, Volume 60, Issue 195, 20 August 1935, Page 6

The Mortgage Corporation

Comments of a rather critical nature recently made by the Palmerston North Chamber of Commerce upon the Mortgage Corporation have drawn a reply irom Sir William Hunt, its chairman of directors. The latter stated that the chamber appeared to be somewhat ill-informed upon the essential features of the corporation’s establishment and articles of incorporation. The discussion by the Chamber of Commerce distinctly gave an impression that it was thought the corporation might suffer loss on mortgages taken over from the State. This view is entirely erroneous. The corporation is wholly indemnified from any loss on such mortgages. It is really most strange that the chamber should not have been acquainted with this point and such lack of knowledge upon a fundamental fact of the highest importance is rather surprising in a usually wellinformed body.

Mention was made that the corporation “is liable for rates as though it were a private company.” On new mortgages this is so, and rightly so. On mortgages taken over from the State, however, the corporation will enjoy the exception from rates liability previously enjoyed by the State. The Chamber of Commerce apparently had not realised this. Concern was expressed that section 21 of the Act, which limited the corporation’s bond issues to fifteen times the subscribed capital plus reserves, was vitiated by the following proviso: “The validity of any securities issued by the corporation shall not be questioned on the ground that the corporation in issuing those or other securities has exceeded the limit imposed by this section.” It was hinted that a hidden pitfall might lie therein. Actually, such a fear is baseless. The proviso is a technical one. It is exceedingly unlikely that the directors of the corporation should deliberately exceed a limitation laid down by statute. With the immense financial operations involved, however, there might occur at some time an issue in excess of the statutory limit. Were the proviso not existent, this might result in the corporation’s being unable to operate to advantage. The high individual standing of the directorate is a fully adequate guarantee that the corporation will manage its affairs with integrity.

It was further stated at the chamber’s meeting that there was no State guarantee of interest and the remark was made: “There is thus no guarantee that any interest will be paid.” The corporation has been established for the purpose of taking its permanent place as a national institution of the greatest importance. Should this institution fail to pay interest, would it be possible for it to continue to play such a part? Then, too, former State mortgagors have the right to transfer themselves to the corporation, in which event they would pay interest at the ruling rate of the corporation’s loans. The receipt of a reasonable rate of interest by the State on such mortgages is a necessity towards budgetary stability. Should the coropration pay no interest on its bonds, then the State would fail to secure any return upon the thirty to forty million pounds’ •worth of mortgages handed over. The State would still have to find interest to pay the holders of Government stocks, a large portion of which have been invested during past years in these very mortgages. And, again, failure on the part of the corporation to pay interest to its bondholders would of a certainty involve the credit of the Government of the 'Dominion.

it was complained that there was no guarantee that any interest Avoukl be paid. Could it truly be claimed that such a guarantee was necessary in the light of the three facts that have been set forth?

The clear facts of the matter arc that the bonds of the Mortgage Corporation will offer to investors a secure and liquid investment, returning interest at a rate slightly above that provided from investment in Government loans. Security is provided in the first place by the £1,000,000 of shareholder capital; in the second place by the £2,750,000 worth of securities transferred by the State to the corporation as an initial reserve fund. Finally, bondholders are secured by mortgages issued to two-thirds maximum of the value of properties of a great diversity and spread throughout the Dominion. Reference has been made to “liquidity” of investment. Bond investment here provides a most valuable service to investors in this regard. A sum invested on mortgage in the usual way is a definitely fixed investment. It is exceedingly difficult to realise upon and is not generally convenient to finance on. A person with a £SOOO mortgage who wishes to raise £SOO on it would have to pledge his -whole security. Had he instead £SOOO ■in corporation bonds he could simply sell £SOO worth on the Stock Exchange and the remainder of his investment would remain free.

Bond investment is the ideal form of mortgage investment. It offers security that no individual mortgage can offer, combined with the liquidity of Government bonds. It is expected that the corporation will shortly make its first issue of bonds for public subscription and the issue should 1m well received.