Poverty Bay Herald PUBLISHED EVERY EVENING GISBORNE, MONDAY, FEB. 18, 1935. MORTGAGE FINANCE

Poverty Bay Herald, Volume LXII, Issue 18633, 18 February 1935, Page 6

Poverty Bay Herald PUBLISHED EVERY EVENING GISBORNE, MONDAY, FEB. 18, 1935. MORTGAGE FINANCE

The Mortgage Corporation Bill <as introduced in the House of Representatives differs widely from the original proposals outlined hy Mr. Coates. The changes that have been made are evidence of the sincerity of the Minister when he stated that he was anxious to hear nil siftes of the question and willing to adopt any reasonable suggestions. The value of much of the constructive criticism advanced is acknowledged in the bill itself, and it may he said without hesitation that the measure is the better for the alterations it contains, liven now, of course, it will not •satisfy. everyone, but it does appear to have compromised sufficiently to ensure its passage without amendment except in regard to some details of minor importance. Mr. .Contes very aptly summed up the position when ho remarked that the promotion, of a sense of confidence among investors was the keystone of the success of the new organisation. At the outset, it appeared that those responsible for the framing of the legislation were so obsessed with the need for giving relief to farmers and other mortgagors that they overlooked the fact that 1 lio fundamental basis of this relief, if it was to be. in any way' permanent, must be the re-establishment of confidence in freehold security. The future of the corporation will depend upon the faith which the investing public has in it, and that faith will be measured by the inherent soundness of Ihe scheme itself. Originally, it was proposed that, bonds should be issued to an amount twenty times as large as the capital and reserve, and that advances should be made up to seventy per cent of the productive value of the security. These clauses were quite incompatible with the intention that the bonds should bo regarded as trustee securities, and the bill now provides that the lending margin should be the recognised one of two-thirds the value, and that the bond issue should bo in a ratio of fifteen to one. These may he small changes, but they have the effect of bringing the scheme within the recognised hounds of sound finance. They arc more or loss typical of other alterations, all designed to strengthen, the institution. The objection will be raised, no doubt, that the ability of the corporation to assist farmers lias been further restricted, but in actual practice the opposite is likely (o be the case. In the first place, the advances which can be made must be governed by the capital subscribed, and nothing would be gained by provision for unduly generous advances if no money was available with which to make them. Secondly, the real value of the corporation to the mortgagor will he assessed according to its ability to lend at low rates of interest. The rate which it charges must be determined by r the rate it has to pay bondholders, and its only chance of securing large sums at reasonable rates is by ensuring that its constitution is sound in every respect and deserving of the support of even the most conservative investors. This, then, is what; Mr. Coates had in mind when he referred to the need for securing the confidence of the investor. It is patent that the initial operations of the corporation will be confined almost. entirely to Inking over mortgages at present hold ,by the various State lending institutions. Some oT the, provisions in this connection are not altogether palatable, but they seem to be unavoidable. The immediate result, apparently, will bo that a mortgagor of the Crown will, in effect, have two-thirds of the value of his security taken over by the corporation, while the balance will be held by the State as a form of second mortgage which will be finally dealt with after the expiration of five years. It seems to be a complicated procedure aimed chiefly at postponing the day of reckoning for a further term, but whatever may be said against it, it has the advantage of

removing any suggestions that unsound State liabilities were to become a burden upon the new corporation. Tn other words, the soundness of the Mortgage Corporation is not in any way impaired by its enforced relationship with State advances. The extent to which farmers will immediately benefit, however, is a matter for conjecture, and unless the bill to be introduced next weolc deals with this aspect there is likely to be some heartburning and disappointment. But if the cardinal principle of financial soundness is to be. preserved— and how else can those who seek to borrow money benefit in the long run?— what more eould be done? It is another ease of the old question: What is the alternative? The Leader of the Oposition, after condemning every aspect of the bill, asserted that the remedy lay in complete socialisation with political power lo issue money, and guaranteed prices to producers. His first proposition presupposes (lint there is a shortage of money, when, in fact, there is a super-abundance of it ; but what is lacking is the security against which to advance it, and this he would further impair by every step in his policy. There is only one precedent for State-controlled currency, and that is in Russia whore the vnliic

of the rouble declined from 40d to fid. New Zealand would be in a happy position, indeed, were she to attempt to meet her overseas obligations and pav for her imports if the value of the pound was reduced to about, ISdl It, is a commentary on the inconsistency of the Labor policy that, it opposes an exchange premium which depreciates the currency by 25 per cent, but espouses a proposal that would virtually sever all relations with sterling. Insofar as. guaranteed prices are concerned, it is only necessary to again point out that, it has never yet been shown by what process our overseas customers, upon whom we are essentially dependent, arc going to be compelled to pay prices in excess of the world parity. The plan for the Mortgage Corporation may have its weaknesses, but taking the very worst possible view of it, it is infinitely more sound than, any alternative that has been suggested. Perhaps the best test that can be applied to it is to regard it independently altogether of a venture by the State and to ascertain how far it measures up to the requirements of a soundly-devised business organisation, and if it is examined im this light, and it is borne in mind that the Government is still ripen to accept any practicable and reasonable amendments, it must be conceded that it contains all the elements of a sound financial enterprise, and one which should be of de finite value, not only to the farmers, but to the whole community.