Enhancement of the Mortgage Insurance Programme and the Revolving Credit Facility

Press Releases

11 Dec 2008

Enhancement of the Mortgage Insurance Programme and the Revolving Credit Facility

The Hong Kong Mortgage Corporation Limited (HKMC) is pleased to
announce today (11 December 2008):

(a) an enhancement of the Mortgage Insurance Programme (MIP) by
lowering the threshold above which insurance will be made available
from the current 70% loan-to-value (LTV) ratio to 60%, up to a
total LTV ratio of 90% for the mortgage loan;
(b) refinement of the eligibility criteria for 95% LTV mortgages
under the MIP; and
(c) an increase, from HK$10 billion to HK$30 billion, in the size
of the Revolving Credit Facility offered by the Exchange Fund to
the HKMC.

In response to changed market conditions, the Corporation has
consulted with MIP participating banks and Approved Reinsurers and
decided to introduce two changes to the MIP.

First, the HKMC will lower the MIP insurance coverage threshold
to start at a 60% LTV ratio. Currently, the HKMC offers insurance
under the MIP whereby borrowers may obtain from the mortgage
lending bank a mortgage loan above a 70% LTV ratio, subject to a
maximum of 95% total LTV. With this enhancement, insurance will be
offered above a LTV ratio of 60%, subject to a total LTV of 90% and
a maximum loan amount of HK$8 million. The move is expected to
assist banks in managing their risk exposure and facilitate their
extension of mortgage financing to homebuyers. This enhancement
will only apply to loans secured by owner-occupied residential
properties. The HKMC will accept applications under the MIP
enhanced scheme with effect from 18 December 2008. The insurance
premiums for such loans are set out in the table at Annex.

Secondly, it is important not to encourage homebuyers to
overstretch themselves in mortgage borrowing, especially in times
of economic downturn. Hence, there will be refinements to the
eligibility criteria for 95% LTV loans under the MIP in order to
help cut down the risk of over-leveraging:

(a) adjusting the maximum debt-to-income ratio from 50% to 45% in
general and from 60% to 50% for high income earners;
(b) shortening the maximum loan tenor from 40 years to 30 years;
and
(c) capping the maximum loan amount at HK$8 million.

Mr Joseph Yam, Deputy Chairman of the HKMC and Chief Executive of
the Hong Kong Monetary Authority said, "Lowering the insurance
coverage under the Mortgage Insurance Programme to start at 60% LTV
level can help to lessen the impact of the credit crunch in the
mortgage financing market on potential homebuyers. It also provides
banks with a greater degree of flexibility in conducting their
mortgage business."

"The eligibility criteria for 95% LTV mortgages need
fine-tuning, given the prevailing economic environment. As a
responsible institution, the HKMC encourages homebuyers to be more
prudent in managing their debt burden in a market downturn. The
Corporation needs to strike a fine balance between upholding
prudent standards in MIP underwriting while making the programme
effective in contributing to the promotion of homeownership in Hong
Kong," added Mr Yam.

With regard to the Revolving Credit Facility for the
Corporation, this is provided by the Exchange Fund through the Hong
Kong Monetary Authority so that the Corporation will have the
necessary funding support to perform its role to contribute to
financial stability in Hong Kong, even in adverse market
conditions.

Mr James Lau, Chief Executive Officer of the HKMC, said, "The
Corporation welcomes the additional support provided by the
Government as its shareholder. The increase in the size of the
facility from HK$10 billion to HK$30 billion demonstrates the
Government's recognition of the importance of the role played by
the HKMC. The HKMC provides liquidity through purchase of mortgage
loans from Authorized Institutions and the Facility provides bridge
financing to the Corporation as necessary."

For more information about these measures, enquiries may be
directed to the Corporation on telephone no. 2536 0136.

Annex

The Hong Kong Mortgage Corporation Limited
11 December 2008

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Last revision date : 11 December 2008