Transcript How can Hong Kong Mortgage Corporation Limited play an

How can Hong Kong Mortgage
Corporation Limited play an
important role in secondary mortgage
loan market in Hong Kong?
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Mortgage 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
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Mortgage 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
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Mismatch 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
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The effect of prepayment to the HKMC
 The prepayment
the abundant liquidity
bank—doesn’t like the
prepayment
affect interest income
bad for HKMC to develop
the MBS market.
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Debt issuers
Fund raised by HKMC is the
maximum
Top issuer of debt
Issued about $11,400million of
debt
HKMC has the significant role in
the debt market
Sufficient financial support MBS
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Bauhinia Programme (US$ 3 billion MBS
programme)
Background and development:
 HKMC introduced the Bauhinia programme in
Dec 2001
 Totally launched four MBS issues
 With amount of HK$7.4 billion
 Second MBS issue of HK$ 3 billion, largest
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Bauhinia 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
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Bauhinia 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
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Bauhinia 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
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Bauhinia 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
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Mortgage 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%.
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Mortgage 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.
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Mortgage Insurance Programme (MIP) ---Example
5% down payment by
the borrower
HK $150,000
25% provided loan by
the insured
HK $750,000
HK $2,100,000
Homebuyers raise
funds (HK$3,000,000)
to buy a house
70% loan provided by
the insured
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Mortgage Insurance Programme (MIP) ---Example
HK $750,000 (25%)
Insurance
Premium
HKMC
Bank
Reinsurance
Premium
HKMC
Approved Reinsurers
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Mortgage Insurance Programme (MIP)
Advantages:
1. Reduce the down payment of the
homebuyers:
 the insured can lend up to 95% loan-to-value ratio
2. Reduce the additional risks of the
financial institutions:
 HKMC provide insurance cover (25% of the mortgage
loan)
 HKMC take out reinsurance with the approved reinsurers
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Criteria
Product type
Floating rate mortgage
Fixed Adjustment rate mortgage
Maximum loan size
For Loan-to-value (LTV) ratio up to 90%:
HK$ 12,000,000
For LTV up to 95%: HK$ 8,000,000
Maximum Debt-To-Income
Ratio
50%
Source:http://www.hkmc.com.hk/mktg/ourbusiness/mip-annex4.pdf
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Criteria
Maximum Loan Tenor
30 years
Minimum Loan Tenor
10 years
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Criteria
Employment type
Non-regular salaried
employed persons and selfemployed persons are not
eligible except for selfemployed professionals such
as medical practitioners,
barristers, solicitors etc.
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Criteria
Owner Occupancy
At least one of the incomegenerating mortgagor(s)/
borrower(s) must occupy the
property as his/ her primary
residence.
The occupying borrower/
mortgagor’s income must not
be less than the monthly
mortgage installment payment
and other monthly debt
obligations.
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Credit Risk
Two committees:
1. Credit Committee
 Duties: set up overall credit policies and
standards
 mortgage purchase and insurance
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Credit 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
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Credit Risk
Four strategies:
1. Careful selection of approved sellers
 seller’s mortgage loan underwriting policies
 seller’s historical delinquency experiences
 seller’s loan serving capabilities
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Credit Risk
Four strategies:
2. Prudent mortgage purchasing
 purchase mortgage of owner-occupied properties only
 consider mortgagor’s exposure to outside debts
 debt-to-income ratio (normally less than 50%)
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Credit Risk
Four strategies:
3. Effective due diligence process:
 review a sample of acquired mortgage loans
 ensure compliance with HKMC’s mortgage
purchasing criteria
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Credit Risk
Four strategies:
4. Protection for some higher-risk mortgages:
 e.g. top-up loans
 Solution: repurchase warranties and reserve funds
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~END~
Presented by:
Mary (034032)
Danise (034053)
Emily (034056)
Melva (034057)
Dawn (037007)
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Multiple 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
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Multiple 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 primebased coupon.
Ans: a)1 b)2 c)3 d)1&3 e)1,2,3
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Multiple 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
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