The Hong Kong Monetary Authority (HKMA) has proposed guidelines for the establishment of a government-owned Hong Kong Mortgage Corporation (HKMC) that will purchase residential mortgage loans from banks in Hong Kong. The objective of this new corporation will be to provide necessary mortgage funding for an anticipated shortfall of HK$788 billion (US$102 billion) by 2005. The HKMC will be structured as a limited liability company with a financial secretary as the chairman of the Board of Directors responsible for appointing other directors of the Board.
The suggested requirements of the HKMC for the purchase of such loans include an original loan of HK$0.5 million to HK$5 million, with a 70% maximum loan-to-valuation ratio at the time of origination over a 25- to 30- year loan term. The maximum debt-to-household income ratio at the time of origination will be capped at 50%. In most cases, the HKMC will only purchase those loans that have a clean record of repayment, defined as no single instalment payment being in arrears for more than 30 days in the past 12 months. The maximum age of the property at the time of origination should not be over 30 years old. The property should also be occupied by the owner when the mortgage is sold to the HKMC and have adequate insurance in accordance with general bank lending practices. To minimize the risk, it is also proposed that mortgage portfolios sold by authorized institutions should not be concentrated in properties by a particular developer or in a particular development.
The HKMC will raise money to purchase these loans from the banking sector through the issue of government-guaranteed fixed-rate securities such as debentures, debenture stock, bonds, notes, warrants, options and other financial derivatives. There have also been reports that the HKMC, which will initially be owned by the government, may sell off a portion of its equity stake through a public listing once a profitable track record has been secured.
Based largely on the US Fannie Mae (Federal National Mortgage Association), the increased liquidity and lower risk incurred by Hong Kong banks through this process should cut the interest rate margin and make more favourable loan terms available to borrowers.
Anne Chen and Mason Ching