Title: How can Hong Kong Mortgage Corporation Limited play an important role in secondary mortgage loan market in Hong Kong?
1How can Hong Kong Mortgage Corporation Limited
play an important role in secondary mortgage loan
market in Hong Kong?
2Mortgage Backed Securities (MBS)
Bank X ? HKMC ? SPC ? Note holder
- Bank X ? sells mortgage loans to HKMC
- HKMC ? transfer mortgage loans to SPC
- SPC (special purpose company) ? issues MBS with
the HKMC guarantee - Note holder ? bank X and other investors
3Mortgage Backed Securities (MBS)
Bank X ? HKMC ? SPC ? Note holder
- Pool of mortgage loan
- ? gives the monthly payment
- Original bank
- ? keeps the service fee, gives the rest to
HKMC - HKMC
- ? keeps the guarantee service fee, gives
the rest to paying agent - Paying agent
- ? gives the pass through payment to the note
holders
4Mismatch mortgage securities
- The HKMC? group the similar mortgage loans into
the same group - Issue different maturity date for the securities
- Normally for the short term
- Reduce mismatch mortgage securities
5The effect of prepayment to the HKMC
- The prepayment
- ?the abundant liquidity
- ?bankdoesnt like the prepayment
- ?affect interest income
- ?bad for HKMC to develop the MBS market.
6Debt issuers
- ?Fund raised by HKMC is the maximum
- ?Top issuer of debt
- ?Issued about 11,400million of debt
- ?HKMC has the significant role in the debt market
- ?Sufficient financial support MBS
7Bauhinia Programme (US 3 billion MBS programme)
- Background and development
- HKMC introduced the Bauhinia programme in Dec
2001 - Totally launched four MBS issues
- With amount of HK7.4 billion
- Second MBS issue of HK 3 billion, largest
8Bauhinia Programme (US 3 billion MBS programme)
- Background and development
- HKMC sell mortgage portfolios to Bauhinia in
different MBS series - Originators ? HKMC ?Bauhinia MBS Limited ? issue
notes in different series
9Bauhinia Programme (US 3 billion MBS programme)
- Differences between MBS and Bauhinia
- HK vs. multi-currency
- Originating bank vs. both institutional investors
and retail investors - Bank sells to HKMC vs. HKMC sells to Bauhinia
- Prime-based vs. choices between prime and
HKBOR-based coupon
10Bauhinia Programme (US 3 billion MBS programme)
- Advantages
- 1. Multi-currency
- attract both domestic and oversea
investors,?liquidity - 2. HIBOR-based
- more choice for investors
- 3. Flexible offering mechanisms
- both public issues and private placements, wider
distribution network of MBS
11Bauhinia Programme (US 3 billion MBS programme)
- Advantages
- 4. Convenient platform
- illiquid mortgage portfolios into liquid MBS
- To sum up, Major milestone for the
development of the secondary mortgage market
12Mortgage Insurance Programme
- Background
- 1991
- ? people are intent on speculative
activities in the property markets. - Hong Kong government
- ? reduce the loan-to-value (LTV) ratio from
90 to 70.
13Mortgage Insurance Programme
- Background
- After the Asian financial crisis
- ? many financial institutions wanted to
increase the LTV ratio to 95 - Hong Kong government did not release the
regulation - The HKMC provided a MIP programme to the
financial institutions.
14Mortgage Insurance Programme (MIP) ----Example
5 down payment by the borrower
HK 150,000
25 provided loan by the insured
HK 750,000
Homebuyers raise funds (HK3,000,000) to buy
a house
HK 2,100,000
70 loan provided by the insured
15Mortgage Insurance Programme (MIP) ----Example
HK 750,000 (25)
Insurance
Premium
HKMC
Bank
Reinsurance
Premium
HKMC
Approved Reinsurers
16Mortgage Insurance Programme (MIP)
- Advantages
- 1. Reduce the down payment of the homebuyers
- the insured can lend up to 95 loan-to-value
ratio - 2. Reduce the additional risks of the financial
institutions - HKMC provide insurance cover (25 of the mortgage
loan) - HKMC take out reinsurance with the approved
reinsurers
17Criteria
Product type Floating rate mortgage Fixed Adjustment rate mortgage
Maximum loan size For Loan-to-value (LTV) ratio up to 90 HK 12,000,000 For LTV up to 95 HK 8,000,000
Maximum Debt-To-Income Ratio 50
Sourcehttp//www.hkmc.com.hk/mktg/ourbusiness/mip
-annex4.pdf
18Criteria
Maximum Loan Tenor 30 years
Minimum Loan Tenor 10 years
19Criteria
Employment type Non-regular salaried employed persons and self-employed persons are not eligible except for self-employed professionals such as medical practitioners, barristers, solicitors etc.
20Criteria
Owner Occupancy At least one of the income-generating mortgagor(s)/ borrower(s) must occupy the property as his/ her primary residence. The occupying borrower/ mortgagors income must not be less than the monthly mortgage installment payment and other monthly debt obligations.
21Credit Risk
- Two committees
- 1. Credit Committee
- Duties set up overall credit policies and
standards - mortgage purchase and insurance
22Credit Risk
- 2. Transaction Approval Committee
- Duties assess the credit risks about the new
products - e.g. mortgage purchase, mortgage insurance and
MBS - propose the terms and conditions for the products
23Credit Risk
- Four strategies
- 1. Careful selection of approved sellers
- sellers mortgage loan underwriting policies
- sellers historical delinquency experiences
- sellers loan serving capabilities
24Credit Risk
- Four strategies
- 2. Prudent mortgage purchasing
- purchase mortgage of owner-occupied properties
only - consider mortgagors exposure to outside debts
- debt-to-income ratio (normally less than 50)
25Credit Risk
- Four strategies
- 3. Effective due diligence process
- review a sample of acquired mortgage loans
- ensure compliance with HKMCs mortgage purchasing
criteria
26Credit Risk
- Four strategies
- 4. Protection for some higher-risk mortgages
- e.g. top-up loans
- Solution repurchase warranties and reserve funds
27Presented by Mary (034032) Danise (034053) Emily
(034056) Melva (034057) Dawn (037007)
28Multiple Choice
- Q.1 How much debt has the HKMC raised in 2004?
- 1) 11,400 million
- 2) 11,500 million
- 3) 12,400 million
- 4) 12,000 million
- Ans a)1 b)2 c)3 d)4
29Multiple Choice
- Q.2 Which of the following about the
advantage(s) of Bauhinia programme is/are
correct? - 1) Issue securities in multi-currency to meet
the need of both domestic and oversea investors - 2) Provide convenient platform to convert
liquid mortgage portfolios into liquid MBS - 3) Investors can choose between HIBOR and
prime-based coupon. - Ans a)1 b)2 c)3 d)13 e)1,2,3
30Multiple Choice
- Q.3 How many insurance cover does HKMC provide
to the financial banks? - 1) Up to 25 of mortgage loan
- 2) Up to 20 of mortgage loan
- 3) Up to 75 of mortgage loan
- 4) Up to 70 of mortgage loan
- Ans a)1 b)2 c)3 d)4