LAND MORTGAGE ASSOCIATIONS.

Press, Volume LX, Issue 18217, 30 October 1924, Page 8

LAND MORTGAGE ASSOCIATIONS.

LOANS FOR FARMERS. BILL INTRODUCED IN HOUSE. (.SPECIAL TO "rnz PBESS.") WELLINGTON, October 29. Tiie Laud Mortgage Associations Bill, which was introduced in the House of Representatives to-night, toiakes provision for the formation of associations of farmers to raise money bv bonds and deposits to enable loans to be made on first mortgage of freehold farming land up to 70 per cent, of the capital value. Advantage is taken of the existing Companies Act as far as possible to provide for the incorporation and management. Practically the whole management is left to directors to be elected by the association, but a. Government officer, called the official auditor, is appointed for each association, his'principal function being to prevent the issue of bonds or the acceptance of deposits beyond the limit of security required by the Act, and to see that a due register of shareholders is kept. With the exception of the signatories to the memorandum of association, who cannot originally be mortgagors, though they may intend to become such, no person may be a shareholder who is not both a "farmer and a mortgagor to the association. Every mortgagor takes one share for every £IOO lent to him. The shares are £5 each. No money is payable on the shares unless and until the association is wound up, no calls can be made, and no dividends are payable. When a mortgage is paid off the mortgagor's name is removed from the list o£ shareholders. The liability on the shares is to provide a further security to the bondholders and depositors in the event of winding up. The provision for finance is as follows: —The Government may advance to an association for its first year's expenses a sum not exceeding £2OOO, without interest, and for a term not exceeding 10 years. The Government may also advance and lend to an association sums not exceeding £50,000, without interest, and for a term not less than ten or more than twenty years. The Act contemplates several such associations, and it is provided that the total of the loans to all associations under this heading shall not exceed £150,000. An association is required to keep one-half of the Government loan in liquid securities to provide for the redemption of bonds and deposits. The further finance to enable the association to extend its lending operations is provided by the power given to the association to issue bonds, of not less than five years' currency, at a rate of interest not exceeding 5i per cent., and to accept deposits for periods of not less than five years at a rate of interest not exceeding 5 per cent. Limit to Issue. The limitation of the issue of bonds and the acceptance of deposits is provided by the condition that the aggregate of such liabilities shall never at any time exceed the amounts loaned and secured on mortgage, together with the amount of the Government loans, and restraint within this limit is provided by the powers of the official conditions. By this means the extension of the funds available for loans on mortgage is limited only by the possibilities of procuring purchasers of bonds and depositors, and the loans may therefore be increased continuously. The bondholders and depositors have always as security, not only the mortgages to the association, but also the full amount of the Government loan. As further security to bondholders and depositors it is provided that out of all repayments of principal the association must invest 5 per cent, upon liquid securities in a special reserve, and the interest on that reserve is added to its capital. The redemption of bonds and deposits at maturity is secured by (1) the investment in liquid securities of one-half of the Government loan; (2) the second special reserve fund gradually augmented by the 5 per cent, repayment of principal, and (3) by a Bpecial power to the association to raise money upon its securities for the sole purpose of meeting bonds and deposits at maturity. When the latter power is exercised the consent of the official auditor is necessary to its exercise.

It is provided that an association must, out of the first principal moneys coming to its hands, or by the issue of further bonds, and the acceptance of further deposits, redeem the charge created for the emergency. It is probable that this power will seldom, if over, be exercised, because in the ordinary course the liquid securities and the issue of further bonds should enable every deposit and bond to be met at maturity. For its current expenses each association will have, in addition to the Government advance for the first year, the whole income of the Government loan and, in addition, the difference between the interest paid on its bonds and deposits, and the interest charged to its mortgagors.