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The Hong Kong Mortgage Corporation Limited

The Hong Kong Mortgage Corporation Limited (HKMC) made the following announcements today (27 July 2000):

Half-year financial results

The unaudited interim results show that the operating profit after tax for the six months ending 30 June 2000 was HK$127 million, a reduction of HK$26.4 million, or 17.2%, compared with the same period last year. Annualised return on averaged shareholder's equity was 10.4 % (14.1 % in 1999).

Total assets increased by 18.5%, from HK$10.6 billion to HK$12.5 billion, compared with the corresponding period last year. There was a HK$1.5 million write-back of provisions due to a reduction in the size of the mortgage portfolio and the maintenance of good asset quality. The capital-to-assets ratio remained strong at 11.4%. The interim results and a financial review are attached at Annex A.

Despite the difficult market environment, the HKMC has made good progress in mortgage purchase. The Corporation has purchased a total of HK$1.5 billion of mortgage loans in the first 6 months and has secured firm offers for another $3.6 billion. The aggregate amount of HK$5.1 billion has already exceeded the HK$1.34 billion figure for the whole of 1999 and the business target of HK$4 billion set for 2000.

The Mortgage Insurance Programme has gained wider acceptance by homebuyers as evidenced by the rising trend in the number of applications. During the first half of the year, the Corporation received a total of 1,984 applications from 31 Approved Sellers, involving a total mortgage amount of HK$4,073 million (compared with 2,150 applications and total mortgage amount of HK$4,439 million for the last three quarters of 1999). Secondary market transactions continued to account for about 90% of the applications received so far. This shows that the programme has helped to enhance the liquidity of secondary property market transactions.

Expansion of Mortgage Insurance Programme

The Board of Directors of the HKMC approved today the framework for expanding the Mortgage Insurance Programme (MIP) to cover mortgage loans with loan-to-value (LTV) ratio of up to 90%.

The MIP was launched by the HKMC in March 1999 with the aim of promoting home ownership in Hong Kong. Under the current arrangement, the HKMC provides mortgage insurance to Approved Sellers for an amount of up to 15% of the value of the property, thereby allowing banks to lend up to 85% of LTV ratio without incurring additional risk. Details of the current Scheme are set out in the technical note at Annex B.

Building on the experience gained so far with the MIP, and having received the support of the Approved Sellers and Approved Reinsurers, the HKMC is now ready to expand the Programme to cover mortgage loans with LTV ratio of up to 90%.

Experience in other markets indicates that mortgage loans with a higher LTV ratio carry a higher risk of borrower default. It is important that the additional credit risk will be mitigated by more prudent underwriting criteria and be adequately reflected in the insurance premium.

The additional eligibility criteria and the premium rates for the new product are set out in Annexes C and D respectively. For a mortgage loan of HK$1.5 million (which is the average size of mortgages in the HKMC's portfolio) with a repayment period of 20 years, the insurance premiums under the single payment and annual payment methods are as follows:

Product Type
Loan-to-Valuation
Insurance Premium


Single Payment Method
Annual Payment Method



Initial Year
Until OPB drops to 70% LTV ratio


% of Loan amount
$
% of Loan amount
$
% of Loan amount
$
Floating Rate Mortgage
Up to 80%
1.40
21,000
0.70
10,500
0.24
3,600
Up to 85%
2.15
32,250
0.90
13,500
0.45
6,750
Up to 90%
2.98
44,700
1.28
19,200
0.63
9,450
Fixed
Rate Mortgage
Up to 80%
1.35
20,250
0.65
9,750
0.24
3,600
Up to 85%
1.95
29,250
0.85
12,750
0.40
6,000
Up to 90%
2.84
42,600
1.2
18,000
0.59
8,850

Many banks are prepared to extend the current arrangement of financing the single premium over the life of the mortgage to the new 90% LTV product. The additional monthly payments for the standard mortgage mentioned above would be HK$172 (up to 80% LTV), HK$265 (up to 85% LTV) and HK$367(up to 90% LTV) for floating rate mortgages; and HK$169 (up to 80% LTV), HK$245 (up to 85% LTV) and HK$356 (up to 90% LTV) for fixed rate mortgages. It is also noted that an increasing number of banks and property developers are offering to pay in part or in full the mortgage insurance premium as a marketing strategy to promote their business.

To prepare for the launch of the Programme, the HKMC will conduct a series of briefing and training sessions for the Approved Sellers to help them familiarise with the new product. The HKMC plans to launch the new product before the end of August 2000.

 

The Hong Kong Mortgage Corporation Limited
27 July 2000

Annex B(i)

Last revision date: 1 August 2011
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