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The Pamphlet Collection of Sir Robert Stout: Volume 65

The Directors

The Directors

should be elected in the usual way, and the Articles of Association should contain, besides the customary provisions, clauses for the special management of the loan arrangements of all shareholders, who should, before the time for paying off current mortgages, give a reasonable notice to the Board of Directors, whose Head Office in the Colony should be where the majority of the shareholders can get at them.

The application for or payment of a share should imply a distinct understanding that where the Articles of Association warrant it, the Board and the Shareholder bind themselves mutually to work for the best interests of the whole body, and with the chief object of reducing the cost of mortgage loans.

When the Directors have received what they deem a sufficient number of applications for mortgage loans, arrangements should be made for going into the money-market.

To reduce the first expenses that must follow the raising of the first loan the debentures should be offered at a rate of interest that will bring about £102 for every £100 bond, the 2 per cent surplus capital being used to defray loan expenses which would be thus capitalised.

Arrangements should be made to get the Association's debentures or stock quoted on the London Stock Exchange, so that capital lent on colonial mortgages would be more readily bought and sold than is the case at present. It would not lock the mortgage money up as is now the case.

In making an application for a loan in London, the total acreage and value of the mortgaged land should be distinctly stated, and each shareholder making an application for a transfer of his mortgage to the Association ought to consent to his securities being amalgamated with those of other mortgagors.

As the aim of the Association is to cheapen mortgage money to the greatest possible ex- page 8 tent, the deed transferring mortgages to the Association should contain a provision that such a course will be followed, and that the maximum interest to be paid shall not exceed (say) 6 per cent., including all charges, without the express sanction of a general meeting of shareholders.

The transfer deed should be as simple as possible, and to all intents and purposes ought to be an equitable mortgage, having all the privileges of Mortgage Transfers under the "Transfer Act."

If the Association could be brought under the Friendly Societies' Act, the stamp duties would not be very heavy.

The Association should so manage its arrangements that after payment of annual working expenses, ½ per cent, of the mortgage capital is charged in the form of interest to each mortgagor for whom the Association may act.

This ½ per cent, should go to a Sinking Fund, to be available at short notice in case of need, to assist backward shareholders who may be unable for one or two half-years to pay the interest agreed upon. Such accommodation should only be paid for by a barely remunerative interest.

In the event of a mortgagor falling irretrievably behind, the Association should have the same rights as an ordinary mortgagee, but no estate should be sold without the express sanction of a majority of the Directors. Where possible the owner of the property should have an opportunity of recovering it, where it has not left the hands of the Association.

The Sinking Fund should be kept as a distinct account, and the Association's Auditors should be at liberty to examine all books and securities in connection with it by giving twenty-four hours' notice.

In return for the advantages given by the Association all property should be held liable to pay an annual tax of not more than one penny in the pound according to Government valuation. Such a tax should only be levied after an explanation from the Board of Directors at a general meeting of shareholders, and should only be used to make up a deficiency in mortgage interest caused by the failure of any considerable body of the mortgagors, and the depreciation of the sureties obtained from them. The Sinking Fund should be exhausted before having recourse to the tax.

For the safety of the whole Association Local Boards might be elected in each county or other division by the mortgagors in such locality. The members might be cither seven or five in number, and they might meet for 1 the transaction of business on the first Saturday of each month. They might act as a local Board of Advice for the Board of Directors, and might receive applications for loans from landowners in their county.

As their district would be liable for any loss arising through the acceptance of a weak security, while on the other hand their own property would be improved in value if a good security were added to the general stock, the Local Board might be required to makes favourable or adverse recommendation to the Directors on the receipt of any application for a mortgage loan from a neighbouring land-owner.

The failure of one county to meet its interest should not fall upon other counties until the local share of the Sinking Fund, and if necessary, the locally raised tax of one penny in the pound, had been found unequal to the payment of the deficiency in that county.

The money to be advanced upon any property should in no ease exceed the Government valuation, and the Association's charge for interest should gradually be higher as the loan asked for approached the Government valuation.

Although the Board of Directors should have authority to act on their own responsibility, their neglect to carry out the recommendation of the Local Board should relieve I the particular county of special liability.

Members of Local Boards should act with, out remuneration, but any expenses to which members might be put in travelling to value a property should be paid by the applicant for a loan.

To provide for incidental expenses the Chairman of each Local Board should receive a portion (say one-half) of the Association's entrance fees.

On the requisition of members the: Chairman of the Local Board should be em- page 9 powered to call a special meeting at some suitable place in his county, and the Board of Directors should follow a similar course at the request of Chairmen of Local Boards.

Interest should be paid half-yearly as determined by the Board of Directors.

The mortgage transfer ought to give the mortgagor a right of redemption at any time, like what they call at Home a Welsh Mortgage.

Of course the "lifting" of any mortgage would relieve the property of all liability in connection with the Association.

A small fine for dilatoriness in paying the interest might be inflicted, possibly from 1/10 to ? per cent, per week.

Possession of mortgage should be deemed sufficient proof that the Association has advanced money and holds claims to any estate, to the amount named in the Transfer Deed.

No business unconnected with the mortgage or sale of land should be undertaken until the first General Annual Meeting of the Association.

The Board of Directors should use every possible effort to bring before the mortgagors the benefits of the Terminal Annuities Branch of the scheme, and should make arrangements for enabling clients to pay off their mortgage debt in a certain number of years, as may be agreed upon. Provision might be made for receiving money at any time, both in England and the Colony, for investment in this way.

Any person who may agree to pay off a mortgage in this way should not lose his right to the benefits of any back payments through inability to pay the annual sum arranged for daring any particular year, but the Board of Directors might allow the interest to be paid for him, and might if necessary debit his account with the money paid.

Any person who has paid off 25 per cent, of his mortgage debt, by the above system, should be accommodated by the Board of Directors with a second mortgage at a reasonable rate.

The principal received annually for Terminal Annuities might be used to take up fresh mortgages.

All moneys not used in defraying working expenses should go to the Sinking Fund, but money might be voted for any particular purpose before placing balance in the Sinking Fund.

For the purpose of adding to the general security in the eyes of the Home investors, the support of the Government should be sought, so that loans, required to carry out the objects alluded to, might be raised on the most favourable terms.

The Government should be asked to bring in a Bill to give effect to the suggestions made, and the Loan Agents should be empowered on behalf of the Association, to offer such a rate of interest as will, in the opinion of the Agents, obtain for the mortgagors interested, all the money required to shift their mortgage debt from the present mortgagees to the Association. The Government might be authorised by Parliament (should the Legislature approve of the scheme) to guarantee any rate of interest that would enable the Association to obtain money on the most favourable terms possible. In which case the State would be empowered to secure itself against loss by taking all the securities held by the Association in the event of the interest not being forthcoming.

All Trust Funds should be considered eligible for investment with the Association.

The Board of Directors should be authorised to make any agreement with the Government or with a corporate body for the benefit of shareholders, who should sanction or annul such arrangement at a general meeting.

A Mortgage Transfer Form should be submitted with the proposed Bill, and should be subject to alteration only with the consent of the Minister of Lands and the Board of Directors.

Notices gazetted by similar agreement might have the force of law until altered by Parliament.

Interest should be paid in London either through the Agent-General's Office or the Bank of England.

If possible, the Inscribed Stock Act should be made use of, and the Governor might be empowered to settle any disputed question arising between the Government and the Board of Directors. His decision should be final until sitting of Parliament.

page 10

For the protection of its own interests, and those of the foreign mortgagee, the Government should have power to examine the books of the Association at convenient periods.

It will be for those interested to consider the value of the suggestions I have offered for the protection of the Government, the English capitalist, and the Colonial borrower.

If farmers will form an Association to deal with the matters to which I have alluded, I feel sure that a small subscription per head will suffice to meet all incidental expenses, including the drafting of a Bill for the consideration of Parliament, and, without inconvenience to themselves, they will soon be in a position to judge of the merits of a scheme such as I have sketched. They can then learn if there is any chance of doing something even more important than lowering the present high rates of interest on mortgage, namely, get rid of the debt itself, which, I maintain can be done by substituting, for the present interest