FINANCE FOR FARMERS.

New Zealand Herald, Volume LXVI, Issue 20228, 12 April 1929, Page 13

FINANCE FOR FARMERS.

MORE PROVISION NEEDED, '

USE OF MORTGAGE COMPANIES.

CANTERBURY COMMITTEE'S VIEWS

The opinion that the methods of.mortgage investment companies are well worthy of the fullest investigation and trial and might prove of great service to mortgagors, investors, and to the general public of New Zealand, is expressed in the report of a special committee, consisting of Professor A. H. Tocker, and representative bankers, solicitors and business men, set up by the Canterbury branch of the Economic Society of Australia and New Zealand. After reviewing the difficulties farmers have experienced in obtaining long-term credit on account of the uncertainty of the real value of land as security since (he war, the report states that with the restoration of greater stability of both prices and productive conditions it appears likely that the land as a field for investment will inspire greater confidence.

"No accurate record is available of the total amount of mortgages outstanding on farm lands in New Zealand, but estimates place the figure in the neighbourhood of £1.30,000,000 to £150,000,000, which is exclusive of mortgages on town property," the committee says. "These figures indicate that the demand is large, and although it is unlikely to be reduced unless land values fall considerably, there is no comprehensive organisation- in operation for the express purpose of collecting money within the Dominion for mortgaga purposes and relending on mortgages. While it is generally \admitted that longterm mortgages are cjesirable, comparatively few institutions are at present organised to supply loans for the extended periods required.

State Advances Office. "Certain shortcomings are apparent in the existing means of supplying funds for mortgage loans. There is a variety of sources from which at most times sufficient funds for short term mortgages, for three to five years, are available. But the agencies, although numerous, are usually small, they deal with individual investments of fixed amounts, and a borrower often finds that, in spite of the offer of first-class security, he has difficulty in securing the exact amount he needs for the period required on reasonable terms. The larger institutions, except for the State Advances Office, lend relatively little on long amortisable loans, and the State Advances is unable to cope with the demand.

"Further, m6rtgage investments have been regarded by many lending institutions in recent years as relatively unattractive, and funds have been invested in more attractive State and local body and other securities. It seems highly desirable that means should be sought to divert investment funds more freely into farm mortgages. Most of the suggestions made, however, have been directed toward either an extension of State lending or the establishment of co-operative banking in some form. Any considerable extension of State lending, which necessarily involves additional State borrowing, is plainly inadvisable, until all possible other methods have been exhausted, on account ! of its effects on our already very swollen public debt.

Pooling Money lor Loans. "Much might be done to facilitate investment on long-term mortgage by institutions established for the express purpose of collecting funds in large or small amounts, and pooling them for loans in mortgage. Lending institutions of this type might prove extremely valuable in the New Zealand mortgage market. They would need to be soundly organised, of indubitable financial standing, and subject to some effective regulation in regard ,to audit and general supervision in order that the interests of investors, mortgagors and shareholders alike might be effectively safeguarded.

"The advantages of such a system are many. It means the establishment of sound and' adequately supervised institutions for the express purpose of collecting and distributing money for mortgages. The bondholders' risk of loss would be exceedingly remote, as their security is spread over many mortgages which are constantly being reduced by amortisation, and the losses, if any, fall on the banks' funds first, thus giving the proprietors the strongest possible incentive to careful management. For the borrower the advantages are equally obvious. There would be in existence specialised mortgage investment companies to which he might go with certain confidence that he would get at any time any loan he might require, lip to the limit placed on his security, at a fair market rate of interest. There would be no periodic renewals, and having his first mortgage permanently arranged he would bo in a. much stronger position to negotiate for other short term credit."

Drawbacks Discussed. The report discusses certain drawbacks to the scheme. "In any proposed system, which has not been fully tried out, some uncertainty is unavoidable," it states. "Before mortgage investment companies were established, it would be necessary to get special legislation passed laying down conditions governing the establishment and conduct of such companies and providing for some form of supervision, in order that the interests of bondholders, mortgagors and shareholders might be fully safeguarded. Mortgage bonds, too. are not familiar in the New Zealand investment market, and time and effort would bo needed to popularise them." Another point raised is that some provision would have to be made to provide a variable rate of interest in accordance with movements in the market rate of interest. As, however, the securities bearing fixed interest rates fluctuated in the market, any security whose rate of interest varied with rates ruling on the market would have a very stable capital value.

The report ends with certain conclusions. Tho committee was of opinion that there was a need of some organisation to attract funds seeking investment in the farming industry, and that it was unlikely that any State facilities now offering could he extended sufficiently to meet the probable demand for long-term amortised loans in the future. Mortgage investment companies'appeared to offer the best form of organisation for attracting investors' capital and lending it on mortgage, and it was therefore very desirable that such mortgage investment companies should be established.