MORTGAGE ASSNS.

Gisborne Times, Volume LXI, Issue 9849, 30 October 1924, Page 5

MORTGAGE ASSNS.

GOVERNMENT’S NEW MEASURE.

HOW FARMERS WILL BE HELPED.

INTERESTING FINANCIAL PRO-

VISIONS

WELLINGTON, Oct. 29

. The Land Alortgages Associations Bill was introduced in the House tonight. ■ It makes provision for the forniafciou of associations of fanners to raise money by" 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 the directors to he elected by the association, hut a Government officer, called the Official Auditor, is appointed for each assocation, 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 cf the signatories to the memorandum of association, who cannot originally be mortgagors, though they intend to become such, no person may lie 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 of £5 each. No money is payable on the shares and until the association is wound up -no calls can he made and no dividends are payable. .When a mortgage is paid off the mortgagor’s name is removed from the list, of shareholders. The liability on the shares is to provide a- further security to the association’s bondbrokers and depositors in the event of a winding up. The provision for finance is as follows : The Government may advance to the association for its first year’s expenses a sum not exceeding £2009 without interest and for a term not exceeding ten years. The Government may also advance and lend to an association sums not exceeding £50,000 without interest for a term not less than ten or more than twenty years. The Act contemplates several such associations and is is provided that the total of y tho loans to all associations under this heading shall not exceed £150,000. An association is required to keep one half the Government loan in liquid securities to provide for tho redemption of bonds and depsits. Tile 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 5 per cent. The limit of the issue of bonds and 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 Auditor. 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, he 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 a 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 resei ve and the 'interest- on that reserve is added to its capital. The redemption of bonds and deposits at maturity is secured by (a) the investment in liquid securities of one half the Government loan; (b) the second special reserve fund gradually augmented by the 5 per cent, of repayment of principal and, (c) by a special 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 being necessary to its exercise, it is provided that the association must out of the first principal moneys coming to its hands or by the issue of further bonds and acceptance of further deposits redeem ' the charge created for the emergency. Jt is probable that this power in’ll seldom if ever he exercised because, in the ordinary course, the liquid securities and the isssue of further bonds should enable every deposit and bond to he 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 the interest charged to its mortgagors.—Special.