Fraudsters employ many different tricks. Recently, there have been a few outrageous scams involving loan intermediaries. In those cases, intermediaries charged exorbitant “handling fee” or “consultancy fee”, sometimes almost equivalent to the loan amount, from victims for “helping” them to take out loans from finance companies. Finance companies are not within the supervisory remit of the HKMA. But this does not mean we can stand on the sidelines. Whenever there are negative news about finance companies, some will point their fingers at the HKMA.
Many still have the (wrong) impression that the HKMA supervises finance companies. In fact, according to the Money Lenders Ordinance, the Companies Registry is responsible for processing applications for money lenders licences, while the Police is responsible for enforcement of the Ordinance. The HKMA’s function is to supervise banks and maintain stability of the banking system, among other things. Nevertheless, we are not oblivious to the problems surrounding loan intermediaries.
The HKMA issued a circular to banks last August, requiring them to cease the use of intermediaries in sourcing retail consumer financial products or services. As a result, you may have received fewer unidentified calls luring you to take out personal loans from banks. But the restriction does not apply to collateralised lending such as property mortgages, which have attracted some attention lately. Whether, and if so how, intermediaries for collateralised lending should be regulated is a matter for public discussion.
Recently, there have been reports about finance companies bundling some of their customers’ mortgaged properties as collaterals for borrowing from other finance companies (sub-mortgage), reviving memories of the subprime mortgage crisis in the US.
We understand that such sub-mortgage loans are not prevalent. For instance, according to the Land Registry, during 2014 and the first three quarters of 2015 when property transactions were relatively buoyant, the number of sub-mortgage cases was a mere 120 or so, less than 0.1% of a total of over 140,000 mortgage cases recorded in the same period. Of these 120 cases, only around 10 involved bank financing. This suggests that sub-mortgage borrowing by finance companies should only have negligible impact on the banking system.
In fact, the HKMA has issued guidelines to banks in March 2015, requiring them to refrain from lending, directly or indirectly, to finance companies that engage in mortgage lending business in a manner inconsistent with the HKMA’s supervisory measures. This also applies to sub-mortgage loans. We understand that banks have been adhering to the guidelines after their promulgation.
I would like to take the opportunity to remind the public that in order to be a smart borrower, when taking out a mortgage loan from a bank or a finance company one should not only compare the interest rates, intermediary charges, etc., but also read and understand other borrowing terms. Think twice before mortgaging your property, and assess your future repayment ability and risk tolerance. In the unfortunate event that you default on your debt due to cash flow problems as a result of changing financial circumstances, creditors may seize and sell your collaterals to recover the loan. If the collateral is a self-occupied property, you may even risk losing your home.
Hong Kong Monetary Authority
10 March 2016