MORTGAGE CORPORATION

Otago Daily Times, Issue 22659, 26 August 1935, Page 10

MORTGAGE CORPORATION

RELEASE OF PROSPECTUS BORROWING AND LENDING RATES « * SAFEGUARDING THE INVESTOR Sir William D. Hunt, chairman of the Board of Management of the Mortgage Corporation of New Zealand, in an interview stated that he fully anticipated that the issue of debentures and (or) stock, the lists for which open to-day, would be rapidly oversubscribed. He added that on the establishment of the corporation with a share capital of £1,000,000 —£500,000 of which was held by the Minister of Finance on behalf of the Crown—the public issue of £500,000 shares was more than three and a-half times subscribed. This response clearly indicated the widespread support of the investing public in the establishment of the corporation. It is not, therefore, surprising, said Sir William Hunt, that the shares of the corporation are already selling on the market at a premium. The prospectus of the Mortgage Corporation of New Zealand inviting the public to subscribe for £500,000 series A debentures and (or) stock at par was now released. Investors have the opportunity of applying to the corporation for debentures and (or) stock yielding an annual interest return of 3| per cent.,

payable free of exchange at half-yearly - dates at any branch of the Bank of New Zealand in New Zealand, or at the head office .of the corporation in Wellington. The debentures, with interest coupons attached, are in denominations of £2O, £4O, £IOO, £SOO or £1000; while stock will be issued for any amount of £4O or more in multiples of £2O. The present issue, which is an authorised trustee investment, should make a strong appeal to the small investor who is rarely given such an opportunity for safe investment. I The prospectus and application forms are obtainable from- any branch of any bank, postal money order office, or member of any Stock Exchange, or head office or branches at Auckland and Christchurch of the Mortgage Corporation. The list of applications will close on or before September 10, 1935. A SOUND INVESTMENT It may reasonably be expected, said Sir William Hunt, that the security and easy negotiability of Mortgage Corporation debentures and (or) stock will popularise this form of investment on the Stock Exchanges throughdut the Dominion, and raise a steady demand from buyers who appreciate the obvious advantages to holders. In this new issue of debentures and stock the public throughout New Zealand is being given the opportunity to invest funds in an established concern which will promote a new era of mortgage finance in the Dominion by linking long-term mortgages to easily (negotiable securities. One very great advantage is that the debentures and stock will give to the holders a floating charge over a large number of mortgages instead of the security of one mortgage only, supported furthermore by the share capital and a substantial general reserve fund. The cautious investor will readily appreciate the benefit of receiving his interest regularly and promptly without any cost of collection. He will be able to enter into his ordinary commitments without any uncertainty as to the receipt of his revenue on the dates appointed. To meet any unforeseen contingency he will have available an asset in the debentures or stock that will find a ready market for disposal and thus retain the liquidity of his capital, while controlling a good investment. If need be a part only of his investment can be realised to meet . urgent requirements and this without delay or expense, other than the usual brokerage payable under the Stock Exchange rules. The chairman pointed out that the issue is at par and thus no question of a premium is involved. The policy of the Board of Management of the corporation, concluded Sir William Hunt, is one of safety for investors and service at lowest possible cost for sound borrowers. ARREARS OF INTEREST Sir William D. Hunt also announces ' that an agreement in principle had been • reached in regard to the amount of stock to be issued to the Government in consideration for the State mortgages now vested in the corporation, and a statement on this matter had recently been made by Mr Adam Hamilton. All interest due but unpaid in respect of the mortgages up to the date of transfer belongs to the Crown, but arrangements have been made by which the corporation, will as far as is possible collect arrears of interest, and to enable this to be done the amount of the arrears as at the date of the transfer will be added to the contingent liability to the State. A proportion of accrued interest as at the date of transfer as well as the difference between the nominal amount of the stock to be issued to the Government and the aggregate amount of the mortgages taken over will also be added to the contingent liability account. A careful survey of the mortgage loan position has been made and the Board of Management is satisfied that all reasonable precautions have been taken and an adequate margin of safety provided. Full provision has been made for working expenses, interest on debentures and stock and dividend on share capital. CONTINGENT LIABILITY The contingent liability will remain until the real value of the mortgages can be ascertained by experience over a period of years. The process will involve the close inspection and appraisement of all existing securities and then a resulting summation of the position generally. In view of the , number and distribution of these securities, any final adjustment of the contingent liability on the lines indicated cannot be completed before some time has elapsed and at the convenience of the corporation. It. should be recalled, however, that the corporation is adequately safeguarded from any loss in respect to mortgages taken over. * The Act itself makes the position quite clear. As regards the nominal amount of stock to be issued to the Government in payment for the mortgages taken ovdr, an agreement between the corporation nnd the Government has been reached regarding the terms and conditions, and particulars of this have already been announced by the Government. The stock to be issued will have long-term, maturity dates and will be redeemable in manageable parcels with suitably spread dates. The first of such parcels will coincide as regards maturity with the first issue to the public, and the other parcels will mature subsequent thereto. RATES OF INTEREST The directors have given a great deal of consideration to the interest rates both from a borrowing and lending point of view, and it has been decidedfor the initial flotation to make available an issue of stock and debentures to a total of £500,000, with a currency

of 26 years, the corporation retaining the right to redeem such issue at the expiration of 20 years. The interest rate has been fixed at £3 7s 6d per cent., and full particulars will apppear in the prospectus which is now available. The same interest rate in terms of the Act will apply to the stock to be issued to the Government.

As required by the enabling Statute proceeds from the issue will be invested on first mortgages of satisfactory securities. The maximum terra as regards good farm lands will be 45 years, but the applicant will be given the opportunity to state the term desired by him and his request will be carefully weighed by the Board of Management after a proper inspection of his proposed security has been first obtained. A like opportunity will be available to the town and suburban mortgagor applicant, although other considerations have to be taken into account in the determination of the term for this class of security. The Board of Management is desirous of making arrangements in each case that will be satisfactory both to the borrower and to the lender, having regard to all circumstances. THE LENDING RATE It will be the aim of the board to offer money to both town and country borrowers at the lowest interest rate consistent with sound lending principles, and after careful consideration of all relevant matters, it has been decided to announce a lending rate of 4£ per centum per annum for the moneys available from the first debenture issue. Where an applicant desires his contribution to the Reserve Fund to be added to the loan, and a maximum term of 45 years is granted, the extra cost will be only 2s per cent, per annum. For shorter terms, for periods from 25 years to 35 years, the extra cost would be between 2s 7d and 2s 2d per cent, per annum On a 45 year term, the annual instalments required to pay both interest and principal, including provision for the Reserve Fund, would be approximately 5 per cent.. The security of tenure will fill a long felt want in the Dominion.

TRANSFER OF STATE MORTGAGES It will also be realised, continued Sir William Hunt, that all State mortgagors transferred to the corporation have the right to require a variation of their present interest rates to the corporation’s lending rate announced above, provided they agree to contribute 2 per cent, oi the outstanding principal to the Reserve Fund, either by cash or an addition to the mortgage. It is a privilege available to the mortgagor under the Statute, and may be exercised by him at any time within three years. It follows that the corporation must await a definite request from the mortgagor giving an intimation of his determination to exercise the statutory right on the conditions stated in the Act.

No doubt full advantage will be taken of this concession by all mortgagors transferred to the corporation from the State. It should be added that, although the exercise of this right by the mortgagors will place a considerable strain on the present office arrangements, steps are now being taken to endeavour to meet the position in a reasonable way. It is proposed so far as possible to arrange any such adjustments from the next due instalment date following the application by the mortgagor. It may also be pointed out that the corporation has the power to advance on flat mortgage for a term of five years with the limit of one renewal for a further five years. It is expected that this facility will in some cases be availed of by applicants desiring meantime a flat mortgage followed by a table one at the expiry of the term of the flat mortgage. Only one contribution to the Reserve Fund is called for and that on the execution of the first security. Applications for loans of this category will also be considered by the corporation.

‘ Forms of application for loans are now available at all post offices throughout the Dominion, and applications from borrowers will be received by the corporation as from the end of the current month.