Mr. CASSELMAN:

Individuals also?

Mr. DUNNING:

No, not individuals. I will come to that on the bill. Any lending institution may become a member company of the central mortgage bank. In becoming a member company it must assume certain responsibilities and agree to make certain adjustments, and as a consequence will receive what might be called certain rediscount facilities.

With regard to the obligations which a member company will assume in the agreement with the central mortgage bank by which it becomes a member company: it will first agree to adjust all its mortgages held on farms in Canada at the date of the membership agreement, and also all its mortgages held on non-farm homes in Canada in cases where the mortgage account does not exceed $7,000, excepting, of course, mortgages under the National Housing Act, to which obviously this measure need not apply. The major adjustment which will have to be made by member companies under the agreement will be to adjust the rate of interest on all mortgages coming within those two classes to which I referred, that is on all farm mortgages

and on home mortgages where the account is $7,000 or less, to a five per cent interest basis. In addition the lending institution must adjust arrears of interest by writing off all such arrears in excess of two years' interest. In addition the total amount owing on the mortgage account for principal, interest and other charges must be reduced to a point where it does not exceed eighty per cent of the fair value of the property under mortgage.

Let me repeat those three major adjustments which are required to be made. First, the effective rate of interest on the mortgage must be adjusted to a five per cent rate. Second, all arrears of interest in excess of two years must be written off. Third, in cases requiring it the amount of the mortgage must be adjusted downward to the point where it does not exceed eighty per cent of the fair value of the property mortgaged. There are other minor provisions, such as extending the mortgage over a period of twenty years on the amortization plan, and so forth, with which I can deal better at a later stage. The rate of interest on the adjusted mortgage, as I said, is to be five per cent. I am trying to pick out of my material the essential points, just to give a general sketch of the proposal.

Mr. MANION:

The minister mentioned

farms and homes. Is this legislation to be general, all over Canada?

Mr. DUNNING:

Yes.

Mr. MANION:

It would include homes in cities and towns as well as farms?

Mr. DUNNING:

Yes. The only difference between the farm mortgage and the home mortgage is that all farm mortgages held by a member company come within the scope of adjustment, but only homes in cities, towns and villages in connection with which the principal amount of the indebtedness is $7,000 or less may be dealt with. In other words we are not compelling adjustment on high priced houses but are attempting to deal with that low and intermediate level which I think is the real urban mortgage problem in Canada.

Mr. McCANN:

Does the $7,000 include arrears?

Mr. DUNNING:

The amount after being adjusted under the terms of the act. I hope at this stage hon. members will not ask me detailed questions, because this is a very complicated matter and only with the bill before us, with all these details completely set out, will it be possible really to question me effectively. I am asking for just that consideration at this stage which I know hon. members will be willing to give.

Central Mortgage Bank

la connection with the western provinces there must be provision in the new mortgages, if the central mortgage bank so desires, for a crop share basis of payment; and in the case of urban homes the method of payment must be the same as that under the National Housing Act, that is to say monthly payments of principal and interest amortized over the period of the mortgage.

That is what the member company will have to obligate itself to do with respect to its present mortgages before it becomes a member company. What then are the advantages, from the point of view of a member company coming into the scheme? Well, in the first place, to the extent of fifty per cent of the aggregate write-offs necessitated by the conditions I have just outlined, twenty year debentures of the mortgage bank will be handed to the member company. In other words the dominion, through the mortgage bank, undertakes tp bear, over the next twenty years, half the loss brought about by this general readjustment of mortgages across the dominion.

Mr. MANION:

Including arrears of interest?

Mr. DUNNING:

Including arrears of interest and the necessary reduction of principal to bring it to the eighty per cent valuation, but of course with no provision for the dominion to bear anything with reference to the new rate of interest which will apply from now on; with respect to the determined amount of the loss created by complying with the adjustment terms; with respect to interest write-offs in all cases, in excess of two years, and any adjustments of principal which may be necessary under the eighty per cent provision. In effect, one half of that amount is borne by the dominion through the medium of the mortgage bank, and spread over the next twenty years. Provision is made for these particular debentures to be redeemed by moneys voted by this parliament annually to meet the amortization terms of the debentures. That is one advantage a lending institution will get, namely that it will at any rate receive an asset for one-half of its total write-offs.

Miss MACPHAIL:

The creditor receives it. He loses one-half and gets one-half.

Mr. DUNNING:

Yes.

You are going to give him something he would not otherwise get.

Mr. DUNNING:

constitutional aspects of the matter because, as is well known, a mortgage instrument is an instrument under provincial rather than federal law. The control over property and civil rights by provincial legislatures gives to them control over many of the factors involved in making loans and taking security from their citizens. Care has been taken not to step beyond our constitutional powers in any particular, nor to infringe the rights of any province. But in view of the fact that the provinces have these wide powers in relation to property and civil rights, it is necessary to insert a clause which will not compel an adjustment by a member company in a province in which legislation exists which, in the opinion of the central mortgage ban, would render unsafe the mortgage which the dominion institution would be rediscounting, by reason of unfair legislation. However there is provision whereby the province may study the matter, and there is time allowed, of course, for any adjustments which may be necessary in that regard. However, that may better be discussed when we are in committee on the bill.

Mr. MANION:

Before the minister takes his seat may I suggest he might tell the house some of the conditions with respect to the individual mortgagee coming under the operation of the act-that is, the individual who is lending money on a house.

Mr. DUNNING:

I have not yet been able to find any means whereby the advantage of a close margin system of state-assisted credit could possibly be applied to the individual mortgagee. That is to say, up to now it is impossible to work out a means whereby the individual mortgagee could go into the central bank and there discount a mortgage which he, as an individual, holds. The reasons for that are Obvious, I believe-on the score of expense alone, with regard to an individual mortgage anywhere in Canada.

However I should say this, that of course a mortgage includes an agreement of sale, and there is nothing to prevent individual mortgagees from forming themselves into cooperatives for the purpose of obtaining the facilities of this measure. Neither is there any difficulty imposed upon the sale of mortgages. That is to say, it is quite possible for an individual mortgagee to sell his mortgage to some institution which can come under the provisions of this measure. Up to now, however, it has not been possible to bring together into one statute facilities for cheap long-term money, and at the same time facilities for dealing with individual lenders. It is altogether too expensive, so far as anything we have

been able to work out up to now is concerned. However, I do not regard that aspect of the problem as finally settled, because I recognize fully that in many parts of Canada the individual rather than the corporate mortgage is the prominent factor in the economy of the area.

Mr. TAYLOR (Nanaimo):

I should like to ask a question.

Mr. DUNNING:

We shall be in committee in a few moments, and I suggest that the hon. member wait until then.

Mr. TAYLOR (Nanaimo):

Is it possible under the terms of the measure for a municipality to be a member company?