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359.3404

insight

Why should banks use mortgage e-Alert Service?

(Translation)

The HKMA has issued a circular today requiring banks to subscribe to the Land Registry’s e-Alert Service for banks in respect of all new mortgage loans. “Smart Ambassador” interviewed Mr Raymond Chan, Executive Director (Banking Supervision) of the HKMA, to understand the rationale behind the introduction of the e-Alert Service and how this service will benefit mortgagors.

Smart Ambassador: 

Raymond, the HKMA has issued a circular today requiring banks to subscribe to the Land Registry’s e-Alert Service for banks.  What exactly is this service?

Raymond:  

To put it simply, this is a notification service regarding the second mortgage of properties.  Whenever a second mortgage document in respect of a mortgaged property is lodged for registration with the Land Registry, the original mortgagee bank of the relevant property will receive an electronic notification from the Land Registry.

Smart Ambassador: 

Why should property owners notify their original mortgagee banks when they obtain second mortgage loans?

Raymond:  

Property owners who take out second mortgage on the same properties from other financial institutions without seeking prior consent from the original mortgagee banks are in breach of their mortgage contracts with the original mortgagee banks.  The HKMA considers that this will increase the credit risk faced by banks, so banks are required to subscribe to the Land Registry’s e-Alert Service to enhance banks’ risk management in mortgage lending.

Smart Ambassador: 

Will this infringe the privacy of property owners?

Raymond:  

Banks should obtain prior consent from the property owners of the mortgaged properties before subscribing to the e-Alert Service regarding the properties concerned.  In using the service, banks must comply with the data privacy laws and should put in place effective measures to protect customers’ personal data.

Smart Ambassador: 

In relation to the requirement for banks to subscribe to this e-Alert Service, does it cover all mortgaged properties in Hong Kong?

Raymond:  

There are hundreds of thousands of property mortgages currently.  There will be practical difficulties for banks to obtain consent from such a large number of existing mortgagors to apply for the e-Alert Service.  Therefore, the HKMA only requires banks to use the e-Alert Service in respect of new mortgage loans.

Smart Ambassador: 

Can property owners of existing mortgages apply for the e-Alert Service?

Raymond:  

This e-Alert Service targets banks.  If a bank applies for the service and the property owner of the new mortgage also opts for receiving alert messages under this service, both the property owner and the bank will receive notifications from the Land Registry in the future.  Property owners of existing mortgages may contact their banks if they would like their banks to apply for this service in respect of their properties.  In fact, the Land Registry has another e-alert service targeting property owners, and the scope of notifications covers more than just second mortgages.  Interested property owners may contact the Land Registry for further information.

Smart Ambassador: 

Will property owners of new mortgages still be able to apply for mortgage loans if they refuse to give consent to banks to subscribe to the e-Alert Service in respect of their properties?

Raymond:  

Yes.  However, as I have pointed out earlier, unauthorised second mortgages may increase the credit risk faced by banks.  Therefore, banks should apply more prudent underwriting standards in respect of such mortgage loans, such as higher mortgage rates or lower loan-to-value ratios, so as to properly manage the credit risk.

Smart Ambassador: 

Regarding mortgages, lately there were some mortgage fraud cases employing quite rampant tactics.  The fraudsters impersonated property owners and applied for mortgage loans from financial institutions.  They were not exposed until the genuine owners received demand notices urging for repayment.

Raymond:  

These fraud cases usually involve forged identity cards or documents.  Although the Land Registry’s e-Alert Service cannot prevent such fraud cases from happening, it will at least allow the banks and the owners concerned to detect any mortgage frauds earlier and take appropriate actions accordingly.  As you have mentioned earlier, it will be hard for genuine property owners to detect fraudulent activities involving their properties if they have not subscribed to the e-alert service.

Smart Ambassador: 

What actions will banks take when customers are found to have breached the mortgage contracts by obtaining second mortgage loans without the banks’ prior consent?

Raymond:  

Banks will notify their customers that they have breached the terms of the mortgage contracts and will take risk mitigating measures according to the actual circumstances to manage the increased risk.  Examples of such measures include raising the mortgage rates, demanding partial repayment of the mortgage loans, or requiring additional collateral or guarantors.

Smart Ambassador: 

When will this e-Alert Service be officially launched?

Raymond:  

The Land Registry plans to start accepting applications for the e-Alert Service from banks in the first quarter of 2017.  We expect banks to prepare their computer systems and operational arrangements for the e-Alert Service so that they will be ready to use the service as soon as possible once it is launched.

 

Written by Smart Ambassador

Smart Ambassador, a staff at the HKMA, is inquisitive and will share with you from time to time the tips on using banking and financial services in a smart and responsible manner.

Last revision date: 26 October 2016
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