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Fact Sheet 6
HONG KONG MONETARY AUTHORITY
THE HONG KONG MORTGAGE CORPORATION
Hong Kong offers fertile ground for the development of a secondary mortgage market, as has been shown by
the strong increase in outstanding residential mortgage loans from 8% of GDP in 1980 to 40% in 1998. A
properly developed secondary mortgage market can play a useful role in channelling long-term funds, such as
insurance and pension funds, to meet the rising demand for long-term home financing.
The Hong Kong Mortgage Corporation Limited (HKMC) was incorporated in March 1997 with the mission
of developing Hong Kong's secondary mortgage market. The HKMC is a public limited company, wholly
owned by the Government through the Exchange Fund, and incorporated under the Companies Ordinance.
The HKMCs business is being developed in two phases. The first phase involves the purchase of mortgage
loans for its own portfolio, funding the purchases largely through the issuance of unsecured debt securities. In
the second phase, the HKMC will securitise the mortgages into mortgage-backed securities (MBS) and offer
them for sale to investors.
Since commencing business in October 1997, the first phase of the HKMCs business plan has proceeded
smoothly. On the mortgage purchase side, the outstanding principal balance of the Corporation's mortgage
portfolio expanded quickly to HK$10.59 billion, as of 30 June 1999. Following a successful six-month pilot
scheme, the purchase programme for fixed-rate mortgages was introduced as a standard programme in
September 1998. Because of the HKMC's prudent purchasing criteria, the mortgages in its portfolio are of
excellent asset quality. As of 30 June 1999, the delinquency ratio of loans overdue for more than 90 days was
0.02%, substantially below the industry average of 1.14%.
On the funding side, the Corporation successfully issued a total of HK$5.2 billion of unsecured debts in 1998
through its HK$20 billion Note Issuance Programme (NIP) and HK$20 billion Debt Issuance Programme
(DIP), making it one of the most active issuers of Hong Kong dollar fixed-rate securities during the year. This
momentum was maintained in 1999. Ten private placements under the DIP and one public issue under the
NIP were made in the first four months of 1999, and a total of HK$1.75 billion was raised through these
issues. The HKMC debt securities were well received by financial institutions and institutional investors. The
average oversubscription rate for these NIPs was more than five times the notes issued. The HKMA acted as
arranger, custodian, agent and operator for these NIPs.
Mortgage Insurance
Programme
On 3 December 1998, the Board of Directors of the HKMC gave its approval in principle for the Corporation
to partner with mortgage insurers to launch a Mortgage Insurance Programme to enable home buyers to secure
mortgage loans of up to 85% loan-to-value ratio. Under the Programme, the HKMC provides mortgage
insurance at a fee to the lending bank for an amount up to 15% of the value of the property. The HKMC will
fully hedge the exposure of the mortgage insurance by taking out re-insurance of an equal amount with a
mortgage insurer. The Programme, launched on 31 March 1999, has been well received by banks and
homebuyers. By 30 June 1999, 38 of the HKMCs 40 Approved Sellers had signed the Master Mortgage
Insurance Policy. Up to the same date, the HKMC had received 789 applications from 24 Approved Sellers,
involving a total mortgage amount of HK$1,658 million. More than 90% of the applications were for
secondary accounts, indicating that the Programme has served to improve liquidity in the secondary market.