The Hong Kong Mortgage Corporation Limited (HKMC) made the following announcement today (1 March 2001):
Financial Results for 2000
The audited financial results of the HKMC show that the operating profit after tax for 2000 was HK$233.1 million, a reduction of HK$38.1 million or 14.1% over the previous year. Return on shareholder's equity was 9.4 % (1999: 12.1%). The capital-to-assets ratio remained strong at 12.3% (1999: 10.1%). The operating results and a financial review of the HKMC are attached at Annex A.
Total assets of the HKMC increased by 6.2%, from HK$13.98 billion to HK$14.84 billion in 2000. Despite the difficult market environment, the HKMC purchased a total of HK$6.35 billion of mortgage loans in 2000, exceeding the amount purchased in 1999 (HK$1.3 billion) by nearly four times and the business target of HK$4 billion by 58.8%. As a result, the outstanding principal balance of the retained mortgage portfolio increased by HK$2.37 billion or 27.1% to HK$11.1 billion as at 31 December 2000. The HKMC has reached agreement with the Hong Kong Housing Authority to purchase a total of HK$17 billion to HK$18 billion of mortgage loans originated under the Home Purchase Loan Scheme from the Authority before September 2002. It is expected that the mortgage portfolio of the HKMC will continue to grow significantly over the next 18 months.
The Mortgage Insurance Programme (MIP) has gained wider acceptance by homebuyers as evidenced by a rising trend in the number of applications. The Corporation received a total of 5,223 applications from 36 Approved Sellers in 2000, involving a total mortgage amount of HK$10.4 billion (compared with 2,150 applications and total mortgage amount of HK$4.4 billion in 1999). Reflecting the increased market penetration of the MIP, mortgage loans with mortgage insurance accounted for 7% of new mortgage loans originated in 2000 (1999: 4%). Secondary market transactions account for 87% of the applications received so far. This shows that the programme has helped to enhance the liquidity of secondary property transactions.
The HKMC is one of the most active debt issuers in the local capital market. During the year, the HKMC launched 11 debt issues to raise a total of HK$6.6 billion under its Note Issuance Programme and Debt Issuance Programme. As at 31 December 2000, the total outstanding balance of debts under the two programmes was HK$11.6 billion. The Corporation was able to achieve a substantial saving in funding cost by adopting a pre-funding strategy to capture market opportunities in the first half of 2000 to issue debts at sub-HIBOR levels (after swapping the proceeds into floating rate obligations).
Expansion of Mortgage Insurance Programme
The Board of Directors of the HKMC approved today an expansion of the MIP to include equitable mortgage loans secured on residential properties under construction.
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 mortgage loans secured on completed residential properties for an amount up to 90% of the value of the property. The arrangement has allowed banks to lend up to 90% loan-to-value (LTV) ratio without incurring additional risks. Since the launch of the MIP, the Corporation has received an increasing number of requests from homebuyers to expand the programme to cover equitable mortgage loans. In response to a survey conducted by the HKMC in January 2001, all of the Approved Sellers indicated their support for an expansion of the MIP to cover equitable mortgage loans.
Findings of the HKMC survey show that the asset quality of equitable mortgage loans is comparable to that of completed residential properties. The survey has also shown that the banks have adopted appropriate underwriting criteria to address the project completion risk, borrower default risk and liquidity risk of equitable mortgage loans. The HKMC has incorporated these measures into the underwriting criteria for equitable mortgage loans under the MIP. The underwriting criteria are set out in the Technical Note at Annex B. Due to these additional safeguards, the HKMC has decided to charge the same insurance premia for equitable mortgage loans as those for the standard mortgage loans.
The expansion of the MIP to include equitable mortgage loans aims specifically at assisting homebuyers to purchase properties in the primary market. The HKMC will strictly enforce the owner occupancy requirement to avoid the Programme being used for property speculation. The borrower will be required to provide a written confirmation of having occupied the property for residential purpose within 3 months after completion of the property, in addition to the declaration of self-occupancy at the time of loan origination and the annual certification thereafter. In accordance with current arrangement under the MIP, if a mortgage loan is found to be non-conforming with the owner-occupancy requirement, the HKMC may increase the premium of the insurance to reflect the higher risk or require the borrower through the lending bank to reduce the size of the mortgage loan and cancel the mortgage insurance.
The Corporation will adopt a phased approach in the introduction of the equitable mortgage product. The first phase will cover equitable mortgage loans with LTV ratios of up to 85%. Further expansion to cover loans with LTV ratios of up to 90% will be considered later in the light of the feedback from banks and the performance of the loans under the expanded programme.
To prepare for the launch of the product, the HKMC will conduct a series of briefing and training sessions for the Approved Sellers to help them familiarize with the new product. The Corporation plans to launch the new product before the end of April 2001.
The Hong Kong Mortgage Corporation Limited
1 March 2001
