WELLINGTON NEWS

Hokitika Guardian, 29 March 1932, Page 6

WELLINGTON NEWS

INTEREST AND RENTS

(Special Correspondent.)

WELLINGTON, March 26

The Mortgage- and Tenant’s Relief Bill will be acclaimed by a number of people, while others will deprecate State interference in such business affairs. These differences of opinion will exist, and it is as well that they do exist, because uninterested persons can examine both skies and arrive at a fair conclusion. In problems of this character there is a short view and a long view, and both the problems must he considered from both points. It often happens that on the short term view certain happenings are desirable, but from the long term view such happenings are detrimental, and so the reserve is frequenty the ease. The Government is not acting unwisely , in respect to interest and rents which are to he reduced under the Bill, it is merely, it is said, anticipating economic movement.

It must be obvious in the case of mortgages that the mortgagee has over-lent and the mortgagor has overborrowed in all instances except a few, and therefore both are blamable. The lOVKff’-lending and over-borrowing has been directly due to over-valuation, if we look hack on the years 1926-1929 and recall the fancy prices that were being paid for country, suburban and town lands, the present difficulties of mortgagees and mortgagors is understandable. Not only were land values excessively high hut building and other costs were also high. Working men on £4 and' £5 per week were buying no houses or having them built under tne supervision of the Advances Office at high costs, and mortgages up to 75 per cent, and more were easily arranged. At the present time it is apparent that real estate is hot worth 50 per cent, of what it was valued three or lour years ago. Under the prevailing economic conditions both the mortgagor and the mortgagee stand to lose, and the question is who should make the greater "loss. As a general rule the mortgagee doe® not desire to take possession of the security on which the advance was made, and foreclosure is being adopted only in extreme and exceptional cases. The mortgagee ; stands to lose through the fall in the value of the security, what that lose will amount to it is difficult to say, hut that it will fie -substantial is very | apparent. Foreclosure means ininiedI iate loss of both capital and interest, 1 and to the mortgagor it means the i loss of everything. Where is the gain I in foreclosure

Would it not be better for the mortgagee to reduce the rate of interest and even to reduce the amount of the capital, so as to enable the mortgagor to retain art interest in the property and try to pay the reduced rate of interest regularly? Whether there is a statutory reduction in the rate of interest or not the mortgagee must suffer because his loan was based on the fictitious value cf the security on which the loan was made, in other words he has over-advanced. Thus reducing the mortgage interest by

statute really inflicts no penalty on the mortgagee, for he must lose whatever happens. To attack the personal covenant is quite another matter, and it would take a great deal to justify it, if justification is at all possible.

It is a dangerous proceeding, for the repercussions will be very- troublesome. As it- is we have placed a rod in pickle with which to scourge our own backs. Future borrower®, and there are bound to be future borrowers because domestic trade as well as international trade is based on credit, and credit implies confidence. It is obvious that insufficient consideration has been given to the proposed legislation, which appears to he more the result of panic than of sane and deliberate considerations.

It is to bo hoped that no atxacK will he made by the Government in respec t to the interest oil Government securities. These stand jn a class ny themselves. There is no tangible security, no security that can he impounded as-in the case of a mortgage or a chattel, those who lend to the Government do ®o on faith, their loans are based on. confidence, A Government bond is merely a promise to repay a certain sum at a specified date, the amount in the meanwhile carrying a. specified interest payable at specified dates. It i® more or less what the m.an-in-the-street terms a debt of honour, and the honour of the Government must not be wilfully impunged. Because of 'the confidencereposed in the honour of the Government, the bonds are treated as giltedged and superior to all other ficeuriiies. It would be folly to strip off the gilt