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A well-developed secondary mortgage market plays 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
(HKMC), wholly owned by the Government through the Exchange Fund, was
incorporated in March 1997 with a mission to develop this market.
The HKMC's business is being developed in two phases.
The initial phase involves the purchase of mortgage loans for its own
portfolio and the funding of the purchases largely through the issuance
of unsecured debt securities. In the second phase, the HKMC securitises
the mortgages into Mortgage Backed Securities (MBS) and offers them for
sale to investors.
Since its commencement of business in October 1997,
the HKMC has proceeded smoothly with its Mortgage Purchase Programme.
Through effective marketing and the introduction of innovative products,
the outstanding principal balance of the HKMC's retained mortgage portfolio
reached $34.6 billion as at year-end.
The HKMC introduced the Mortgage Insurance Programme
(MIP) in March 1999 to promote home ownership in Hong Kong. It enables
the banks to lend home mortgage loans above the 70 per cent loan-to-value
ceiling set by the HKMA without incurring additional risk. In 2000, the
MIP was expanded to cover mortgage loans with a loan-to-value ratio from
85 per cent to 90 per cent. In 2001, the MIP was expanded to cover equitable
mortgage loans on residential properties under construction with loan-to-value
ratio of up to 90 per cent. The loan size ceiling for mortgage loans on
residential properties under construction with loan-to-value ratio of
up to 85 per cent was increased from $8 million to $12 million in December
2003. The streamlined pricing arrangement (commonly known as 'one-stop'
90 per cent mortgage service) for mortgages covered by the MIP was well
received since its introduction in late 2002. Since its inception in 1999,
the MIP has steadily been gaining acceptance by home buyers and increasing
market penetration through product diversification and effective promotion.
The total number of applications received since launch amounted to 31
000 and the penetration ratio of the programme had reached a level of
13.6 per cent for the first 10 months of 2003.
One of the missions of the HKMC is to promote the
development of the MBS and debt markets in Hong Kong. The HKMC launched
a back-to-back MBS Programme in October 1999. The back-to-back structure
allows banks to effectively 'repackage' their mortgage portfolios into
more liquid portfolios and to maintain the majority of the cash flow if
they hold the MBS in their own investment portfolio. The HKMC's guarantee
on the timely payment of principal and interest serves to make the MBS
a safe and attractive investment for investors. The HKMC has securitised
$2.84 billion of MBS with three of its key business partners. The corporation
also launched a multi-currency conventional bond-style MBS Programme in
December 2001. Under the programme, two issues of $2 billion and $3 billion
were launched in March 2002 and November 2003, respectively.
Debt issuance is the mainstay of the HKMC's funding
sources. Through debt issuing activities, the HKMC is able to achieve
the objective of promoting the development of the Hong Kong dollar debt
capital market. In 2003, the HKMC successfully launched 54 debt issues
for a total amount of $10.9 billion under an enlarged Debt Issuance Programme
(programme size increased from $20 billion to $40 billion) and through
the retail bond issuance scheme, making it the most active corporate issuer
of fixed rate debt securities in Hong Kong. At year-end, the HKMC had
112 issues of debt securities with a total amount of over $33.1 billion
outstanding. The HKMC debt securities were well received by financial
institutions, as well as institutional and retail investors. To help develop
the retail debt market, the HKMC pioneered the issue of retail bonds through
banks as placing agents in October 2001. Since then the HKMC has issued
16 retail bonds for a total amount of over $7.5 billion. Banks and other
corporations adopted the same mechanism to issue retail debt securities
with an aggregate issued amount of over $38.6 billion in the same period. |
