MORTGAGE ASSOCIATIONS

Gisborne Times, Volume LXI, Issue 9852, 3 November 1924, Page 6

MORTGAGE ASSOCIATIONS

MB MASSEY ON THE: NEW BILL. WHAT OTHER COUNTRIES ARE DOING. “LAST WORD RESTS WITH PARLIAMENT.”

WELLINGTON, Cct. 31

The Prime Minister issued a statement to-night on the subject of 4 arm Mortgage Associations: “As there seems to he a good t.ea; -of misapprehension on the P a ’'° 0 the people taking both sales of; the question with regard to the Lill, J have decided to hold the nieasmc over for the present in the hop ? that it may be carefully considered in the recess. The Bill is intended to assist tho finance of farmers who require borrowed capital, and it provides for tho setting up of what are called Farm Land Mortgage Associations. Any twenty or more fanners intending to borrow money on the security of^farm land from an association to he formed under the provisions of the Bill may, by complying with the requirements 'of the Companies Act, 190 S, in respect of registration, form an incorporated company with limited liability. . . .. The objects of the associations shall be:—•

(a) lending of money to farmers unon the security of farm land. ‘(b) The raising of moneys by the issue and sale of bonds. (c) The receipt of moneys on contract of deposit. .

“The finance of associations will be based upon an advance in each case from the Government for the first year’s expenses of a sum not exceeding £2030, free of interest, for a term n Jt exceeding ten years. Interest, however, is payable at 5 per cent, after the first ten years. (Section 10, ;>\ Tho 'Government may also lend to an association £50,000 without interest- for a term of not less than ton hut not more than twenty years. The limit of lending in this way is to he not more than £150,000. Permission is given to associations to extend its lending operation by authority to tho issue of bonds of not less than five years’ currency at 5’ per cent., although in committee 1 propose to increase the maximum rate to G per cent. The Bill also provides for deposits for not less than five years at .a rate of interest not exceeding 5 per cent. Auditors will he provided., by the Government, and their salaries and expenses will he paid by the 'Crown.

“Farmers borrowing from an association will give mortgage- deeds "therefor. These latter will 'be hold by the association and against them bonds may be issued, bearing a face value of £lO or some integral multiple of £lO. The working capital, therefore, of an association is intended to be provided by (1) contributions from the Government ; (2) money without interest by the Government; (3) deposits; (4) borrowers becoming shareholders to the extent of one share for every complete £IOO advanced, and becoming liable to that extent for uncalled capital upon such shares until tho whole amount of such advance has been repaid to the association; (5i the issue of bonds.

“The amount that may he borrowed by any one individual is limited bv tiie Bill to £SOOO, and no loan shall be made to an extent exceeding 70 per cent of the value of the lands to be mortgaged as security. Wo are often told of what the Governments of other countries have done to help th.ese lending institutions, and we are specially reminded of America. The banks in America doing business specially with agriculturists have just passed through the most serious crisis in their history, during which, according to reports in reliable newspapers, hundreds have closed their doors. But this does not apply to those which were assisted by the ♦State. The aggregate assistance provided by the American Government for the land mortgage banks in which they were concerned was £1,800.000. This, in itself, for a country which has a population of ninety times that of New Zealand is not proportionately equal to the £l-30.000 proposed to fie provided by the Government of this country, and be it remembered that, ■in addition to the larger sum, there are minor contributions for several purposes. In the case of the Banish associations, their members are jointly and severally responsible to the extent- of the fully assessed value of their property, provided they have -obtained a loan equal to three-fifths of that value. Their guarantee of interest is confined to special small associations which deal with properties valued at not more than £550, if of less than 2V acres, and £670 if of greater extent. The American law provides for two kinds of mortgage institutions, designated Federal land hanks and joint stock land banks.

“Federal land hanks or mortgage hanks were established by the United ■States Government with a maximum capital each of '£150.000. most of which earn a from the Federal Treasury. The outside or private agricultural hanks were those which suffered most in the recent crisis and, judging from newspaper reports, very few of those which were in business in the north-western States a few years ago arc still in existence. In Canada no special provision is made by the Dominion Government. Chartered hanks do most of the business in the ordinary way. The province of Ontario has a farm loan board, and their advances on long term loans are less than £1,000,001) out of an estimated total of £83,000,000 on farm mortgages in that province. This State also provides a short term credit system. advances being limited to £4OO and the interest being at the rate of 6.1 per cent. Referring again to the Danish system, it may he pointed out that the whole of the system consists of credit associations which are co-operative associations of land owners formed for the purpose of borrowing money on the security of their real property. It should he noted that these credit associations are private institutions and that, except in the case of special associations for small holders, the maximum value of property is £670. Xo assistance is given by the State either by way of loan or guarantee. These small associations receive £3OO foi establishment expenses and interest guaranteed at per cent par. Articles of Danish associations must be approved by the Minister of the Interior, and cannot bo altered without his consent. The minimum requirement to form an association is that borrowers require loans aggregating £5-3,500 and the maximum loan to one person is three-fifths of ■the valuation of the security. The issue of bonds cannot exceed the total of members’ mortgages deposited. Members jointly and severally are responsible for the bonds issued by their association, and the minimum denomination of the bonds is £3. A member obtains a loan in the form of bonds, and must himself accept the risk of their selling below par. Without special license associations cannot charge their members more than 4 per cent'* interest. The leans are repayable by amortisation .over a period of sixty years. Sir Rider Haggard in his book entitled ‘‘Rural Denmark and Its Lessons,” refers to their credit system, and f?ays that the largest loan advanced •by the credit system of the Danish Xsles amounts to £94,400, but the sum# lent are sometimes as small as £-3-3. There is some doubt as to the Accuracy of this statement, because there occurs the following paragraph which is contained in the same hook: “Tiie following t-able. published in 1907., will show how Daukh properties were d.kffiPd as to number and jß’Xq,. It wiU ho observed thutyat

that time and since 1907, the proportion has varied little if at all. There were only 2392 properties that comprised more than 270 acres of land, of which the total acreage amounted to 1,539,273. As against this there were 247,691 properties varying from U acres to” 270 acres, and comprising 6 637,896 acres of land. 1 may add that in 1906, out of Denmark s population of 3,600,000, over 54 per cent belonged to the agricultural classes. The table that accompanied this paragraph indicated that the aaeiago holding in Denmark is 32. i acres, the author, places the value of. good agricultural and in Denmark at that date at *£33 per acre.. The average ol in'r is thus valued at about £lUuO, and the average "encumbrance in the country had been estimated at 4J pel cent of the total value of the land. On this basis tho average loam would work out at about £530. In Western Australia an agricultural bank makes advances up to £2OOO, and interest must not exceed 7 per cent. in xasniania, an agricultural bank makes advances up to £IO6O. “in New Zealand some very extravagant demands have been made on the Government by persons asking for a hank with a nominal capital of £20,000,600, of which £5.000,000 is to be guaranteed by the State, and the maximum amount of loan is to be £22,090. Such demands are not only unreasonable but, if agreed to, would most certainly end in disaster. the plain fact is that in New Zealand we have to-day in its present form one of the best lending institutions in I he world, namely the State Advances Department, which is advancing money at the present time to farmers and workers and local bodies, the rate of interest being from 4’- per cent to per cent. In Australia there are several State agricultural banks. New South Wales has what is called the Rural bank, though it really is part of tho State Government Savings Rank, advances being made to settlers under the Government Savings Bank Act. Advances may be made on freehold lands of “not less than £56 nor of more than £2ooo' to any one person, and on Crown leasehold advances arc limited to £SOO and. the loan may not exceed the value of the improvements. Di \ ictoria the Credit Toneier Department of the State Savings Bank makes advances on first mortgage, only advances must not be less than £650 or more than £2OOO. In Queensland the State Advances Corporation makes advances up to £1230. In South Australia tho State Bank makes advances up to £5060, provided that the amount does not exceed three-fifths of the unimproved value. The loans authoiiscd number 11.564, of the amount of £]0,332,752', and those paid over number 9472, of the amount of £S,608,426. This department is now established on a very solid basis, with a capital little short*of £25,000,000 and growing steadily. My own opinion is no other organisation can compete successfully with it-, and if necessary, I would prefer to increase the capital still further from time to time. But, if farmers want- a lending institution on lines similiar to those existing in ether countries, then, so far as I am personally concerned they are welcome to it. But the last word rests with Parliament.”