RURAL FINANCE

New Zealand Herald, Volume LXXI, Issue 21935, 19 October 1934, Page 13

RURAL FINANCE

REORGANISATION PLAN LONG-TERM LOANS BEST MORTGAGE CORPORATION STATE-GUARANTEED BONDS [BY TELEGRAPH —SPECIAL REPORTER] WELL!NCTON. Thursday Reorganisation of rural finance by the creation of a New Zealand Rural Mortgage Corporation, which, against publicly-subscribed-for State guaranteed bonds, will engage in long-term credit operations on the amortisation principle, is suggested by the Dairy Industry Commission as a better means of assisting farmers than the granting of subsidies or guaranteeing of prices. The commission emphasises that, although the financial relief legislation has been of some benefit, it has tended to prevent decisive adjustments between mortgagee and mortgagor, and has made it practically impossible for many farmers to refinance at lower rates of interest. Confidence in rural investments will uot be restored and cheaper rural finance will not be generally available until the mortgage situation is made more fluid and until mortgages are provided with greater security and greater freedom from restriction than exist at present, it contends. The commission considers that investors should be afforded an opportunity of investing in bloc securities over land, thereby avoiding the risk of losses on individual mortgages and relieving themselves of the necessity of supervising their investments. Corporation's Constitution In order that the mortgage corporation may bo soundly informed on matters relating to primary production and finance, it is suggested that the governing body should include one or more representatives of the directorate of the Reserve Bank and the chairman of the Council of Production and Trade. District Rural Mortgage Commissions, which, in the initial stages, might be the existing Mortgage Adjustment Commissions, should be set up as required. These would continue to be vested with their existing powers for the remainder of the currency of the Mortgagors and Tenants Relief Act, plus such additional powers as might be thought necessary to give. They would have seconded to them sufficient staffs of officers to provide valuation, supervisory and budgetary services, to bo provided from the existing field staff* of the Agriculture, Lands and Survey. State Advances and Valuation Departments. Perpetual Bonds The corporation would have the. right to issue bonds in exchange for existing mortgages, and to obtain funds for lending on new mortgages by the sale of bonds, which would be perpetual, but redeemable by purchase by the corporation. The interest to be paid on bonds and by mortgagors would be decided triennially by the corporation, and would be fixed at such a level that bonds would command par value at the triennial adjustment date. The rates payable in respect of bonds and mortgages issued or taken over between adjustment dates would be fixed at levels designed to bring them into the general line of other bonds and mortgages at the next adjustment date. • The commission suggests that the corporation should not be empowered to grant an application in respect of any mortgage the term, or extended term, of which has not expired, unless the opposite party consents or the Court is satisfied that the mortgagor is entitled to relief under the Mortgagors and Tenants Relief Act. Nevertheless, a mortgage shall bo deemed to have expired at the expiration of K months irom the date on which the mortgagor gives notices to the mortgagee of his desire to have the security taken over by the corporation, or at the expiration of any shorter period as may be expressed in the mortgage deed. It is also suggested that any mortgagor who has not made application within the time prescribed should not be protected or be eligible for protection under the Mortgagors and Tenants Relief Act. Assessing Securities Before granting any application the corporation should refer it to the appropriate district commission, which will appraise the security offered by tho applicant, and classify it as either —(a) security suitable for accommodation; or (b) security unsuitable for accommodation. Class (a) may be broken into three groups: —(I.) Properties where a valuation discloses that the full amount of existing mortgages may safely be taken over by the corporation at the prescribed rate of interest. (II.) Pro-

perties where a portion only of existing mortgages can safely be taken over by the corporation, but where the residue of the applicant's liabilities, whether secured by mortgage or not, appears to be capable of liquidation within a reasonable time. In such a case, the portion of the mortgage debt or debt? that cannot safely be taken over in exchange for bonds will be placed by the corporation in a suspense account, provided the mortgagee or mortgagees concerned consent to the basis of settlement that the corporation is prepared to adopt. Whore consent is withheld the report of the district commission setting out the proposed basis of settlement will be submitted to the Court, which will take into consideration all the relevant circumstances and have regard to the public interest and the interests of the mortgagor and mortgagees respectively; and if the Court considers it equitable so to do and is satisfied that there is a likelihood of the portion of the mortgage debt or debts so placed in a suspense account being liquidated within a reasonable time, it will make an order approving the basis of settlement. The applicant will then bo budgeted in much the same manner as under the present system of budgeting adopted by the Mortgage Adjustment Commissions, in order to liquidate, firstly, the portion of the mortgage debt placed on the suspense account, and, secondly, his other liabilities. It is noted that an applicant's other liabilities are an important consideration, for it would be futile to readjust his mortgage position if his other liabilities were unmanageable and likely to lead to bankruptcy. Compromise with Creditors In a third group would be placed properties such as those in group two, but which also require a compromise with mortgagees and/or creditors other than mortgagees to reduce the residue of the applicant's liabilities to a manageable amount. In the latter case, if creditors holding 75' per cent of the applicant's indebtedness other than mortgage debt agree to a compromise, the Court is to have power to make it binding on the remainder. The amount of bonds in exchange for which the corporation may take over existing mortgages is not to exceed 80 per cent of the total valuation of land and improvements, and in the case of new mortgages, 70 per cent. These percentages are maxima, and it is not suggested that the corporation should finance up to the maximum limit in all cases. Mortgages taken over in respect of securities classcyl AI. will be on an amortised basis, but the mortgagor will not be under budgetary control. Control of Mortgagor Mortgages taken over in respect of securities classed All. and AIII. will be on a flat basis, but the mortgagor will he under budgetary control. The surplus proceeds over budgetary requirements will be distributed equitably according to priority among the mortgagees whose balances are held in the suspense account, and may be used to pay interest at .a rate not higher than that payable to the cori poration and/or capital in respect of such balances. If and when all such debts are liquidated, the mortgagor will be released from budgetary control, and his mortgage liability to the corporation will be readjusted on an amortisable basis. Mortgagors whose securities are classified in Class B \\ill, as from a date to be fixed, be removed from the pre tection of the Mortgagors and Tenants Relief Act. The district commission should, however, in each such case make any recommendations to the mortgagor and the mortgagee that it considers advisable, but. thereafter the process of adjustment would be outside the pro vince of the commission. The commission suggests that, with the exceptions provided above, the Mortgagors and Tenants Relief Act will cease, as from a date to be fixed, to apply to rural mortgages. Government Finance The commission makes the following further recommendations: — "(1) Government Finance.—lt is anticipated that the initial expenses in connection with administration will be impossible of recovery for some years, and it is therefore necessary that the Government take up bonds, as required by the corporation, up to £IOO,OOO. These bonds should be free of interest for three years, and thereafter bear interest at current rates payable from the general revenue of the corporation. " (2) Government Guarantee.—ln order to secure the lowest possible rates of interest and to make the corporation's bonds attractive to investors and suitable securities for the investment, of trust funds, the Government should guarantee the payment of interest thereon, and declare the bonds to be trustee securities "(3) Mortgages Due on Transfer.— The term of every existing mortgage taken over by the corporation and the term of every new mortgage accepted bv the corporation should expire, and the principal moneys secured thereby should become due and payable on the transfer of the property encumbered, unless the corporation approves of the. transferee and consents to the transfer. This condition would not apply in the case of a devise of land under a will or of a transmission to the executors or administrators of a deceased mortgagor."