MORTGAGE FINANCE

New Zealand Herald, Volume LXXII, Issue 22107, 13 May 1935, Page 5

MORTGAGE FINANCE

CORPORATION'S POSITION DIVIDEND ON SHARES STRENGTH OF SECURITY [BT TELEGRAPH —OWN CORRESFO-DEXT] WELLINGTON, Sunday A statement regarding the Mortgage Corporation scheme and shares has been made by the acting-Minister of Finance, the Hon. A. Hamilton. The Minister said that from statements which had reached him it. appeared that some people were still under a misapprehension as to the financial position of the Mortgage CorjDoration when it commences business. " It should be realised, however," he said. " that to achieve its purpose of borrowing money on the best possible terms for lending on mortgage securities, the corporation must be a financial success and pay a full dividend of four and a-half per cent on shares from the outset.

" The transfer of mortgages from the State will place the corporation in business on a large scale as soon as it commences operations. It must be emphasised, however, that the terms upon which the £50,000,000 of mortgages are to be transferred from the State are such as to impose no risk of loss on the corporation. First of all it is to give bonds for a safe portion of the amount, leaving only the balance to rank as a contingent liability on which the only return that will be paid to the State is the net profit after paying a full dividend on the share capital. Furthermore, any capital losses in respect of any of the State mortgages will be borne by the State and not by the corporation. Interest on the Mortgages " To show how safe is the dividend on shares from the outset I may mention that the interest received by the State Advances Office and the Lands Department during the financial year 1933-34 on the mortgages that will be transferred to the corporation amounted to £2,148,000. equal to over 80 per cent of the amount due for that year. The figures for 1934-35 are not available at present, but it is known that they are as good if not better than those quoted. " The financial arrangements for handing over the mortgages are matters to be discussed with the board after it is appointed, but if the bonds issued to the State in exchange i'or mortgages were equal to 80 per cent of the latter and amounted to. say, £40,000,000, and bore interest as high as throe and a-half per cent per annum, the bond interest would amount to £1,400,000 per annum. Width of tke Margin

" A deduction of this from the mortgage interest receipts mentioned above leaves £748,000 to cover administration costs, dividend on shares and return to the State on the contingent portion of the State mortgages. The administration costs of the State Advances Office, and of the discharged soldiers' settlement account, amount to £157,000 per annum, and the full dividend on capital will be £45,000 per annum. It will thus be seen how wide •a margin there is to safeguard the dividend on shares, quite apart from new business and the revenue earned bv the direct investment of the capital."