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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.
Fact Sheet 6 HONG KONG MONETARY AUTHORITY The Corporation will consider launching an inaugural issue of mortgage-backed securities in 1999, a core component of the second phase of its business plan, if market conditions permit. The Hong Kong Mortgage Corporation: Facts and Figures Ownership 100% owned by the Government through the Exchange Fund Share Capital Authorised share capital of HK$3 billion (US$0.38 billion). HK$2 billion (US$0.26 billion) already paid up with the balance of HK$1 billion (US$0.13 billion) on a callable basis. Capital-to-assets ratio as at 30 April 1999 is 9.9%. Structure Limited company registered under the Companies Ordinance, with participation from the public and private sectors on the Board of Directors. Business strategy Business scope to be expanded in phases, starting with the purchase of mortgage loans for retained portfolio funded largely by the issue of unsecured paper, followed by the issue of mortgage-backed securities. Enquiries about the HKMAs work should be directed to the Resource Centre, HKMA, 8/F, 3 Garden Road, Hong Kong. Tel: (852) 2878 8222 Fax : (852) 2878 2010 E-mail: hkma@hkma.gov.hk Website : http://www.info.gov.hk/hkma
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