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The development of Hong Kong Mortgage
Corporation Limited (HKMC)
Agenda Introduction Current development Future development Conclusion MC Questions
Introduction
Background of HKMC
established in March 1997
supply of mortgage financing in Hong Kong
majority of mortgage loans are in floating rate terms
not exposed to any substantial interest rate risk, but subject to other funding risks
Background of HKMC (cont.)
initial capital of HK$1 billion from the Exchange Fund
primary objective is to promote the development of the secondary mortgage market in Hong Kong
can sell their mortgage loans in the secondary market to raise liquidity
Functions of HKMC
Stability of the banking sector
Fund supply for mortgages
Promotion for the debt securities market
Current development
Mortgage-Backed Securities
17th November 2005
HK$1 billion MBS
Under the US$3 billion Bauhinia Mortgage-Backed Securitization Programme
Target : institutional investors
Mortgage loans : from HKHA
Mortgage-Backed Securities (cont.)
The price of the MBS issue is at par
Two classes of notes
- Class A-1 notes (HK$400 million)
- Class A-2 notes (HK$600 million)
Mortgage-Backed Securities (cont.)
Class A-1 notes
- coupon rate : 4.73% (Fixed rate)
- maturity : three years
- stable return
Mortgage-Backed Securities (cont.)
Class A-2 notes
- coupon rate : 1-month HIBOR+0.18% (Floating rate)
- unstable investment yield
Mortgage-Backed Securities (cont.)
Both classes of notes
- repay principal and interest on time
Notes rating
- Standard & Poor's : AA-minus
- Moody's Investors Service : Aa3
10-Year Fixed Rate Mortgage Scheme
3rd November 2005
Under the Corporation’s Fixed Adjustable Rate Mortgage (FARM) Programme
Mortgage loans :
- fixed-rate period from 1 year to 10 years
Six participating banks
10-Year Fixed Rate Mortgage Scheme (cont.)
Extend the loan tenor
- from 5 years to 10 years
Fixed-rate period:
- 1, 2, 3, 5, 7 and 10 years
LTV : 95%
10-Year Fixed Rate Mortgage Scheme (cont.)
Mortgage Rate : Fixed during the period
protect borrowers against any future
volatility in interest rates during the
entire period
End of the fixed-rate period 2 choices:
- re-fixing the mortgage rate
- floating rate of Prime - 2.25% per annum
10-Year Fixed Rate Mortgage Scheme (cont.)
FARM Period Mortgage Rate(% per annum)
Mortgage Rate after FARM Period
(% per annum)
1 5.00%
Prevailing fixed rateOR
Prime - 2.25% per annum
2 5.10%
3 5.20%
5 5.40%
7 5.50%
10 5.60%
10-Year Fixed Rate Mortgage Scheme (cont.)
Long-term mortgage rates are attractive
- e.g.
- prime rate 7.5%
- floating mortgage rate of Prime-2.25% 5.25%
Higher than the fixed mortgage rate up to 3 years offered under the special scheme
10-Year Fixed Rate Mortgage Scheme (cont.)
Triple-win situation
- Homebuyers :
additional choice of mortgage financing
- Participating banks :
procuring new mortgage businesses
- HKMC :
diversify the mortgage portfolio
HK$20 Billion Retail Bond Issuance Programme
Issued date: 1 August, 2005 The issuer’s credit rating:
- Moody’s: Aa3/A1
- S&P: AA-/A+ Four series of notes issued 17 Placing Banks to distribute the Issue to
retail investors
HK$20 Billion Retail Bond Issuance Programme (cont.)
The followings are the coupons of the four series of notes:
Currency Tenor Coupon (payable semi-annually)
HKD (Series A) 1-year 3.00%
HKD (Series B) 3-year 3.50%
USD (Series C) 1-year 3.10%
USD (Series D) 1-year extendable for 1 year and further extendable for 1 year
3.10% for first year3.50% for second year4.00% for third year
HK$20 Billion Retail Bond Issuance Programme (cont.)
Series A and B:
- Denomination: HK$50,000
- Application Price: 102% of the principal amount of the notes
Series C and D:
- Denomination: US$5,000
- Application Price: 100% of the principal amount of the notes
Interest for all four series were payable semi-annually
HK$20 Billion Retail Bond Issuance Programme (cont.) Benefits: - Provided investors to achieve a balanced
investment portfolio and stable interest income
- Wide distribution network to reach out effectively to retail investors
HK$20 Billion Retail Bond Issuance Programme (cont.)
Benefits: - Variety in currency, tenor and return to
provide investment choices to retail investors
- Established market making arrangement to facilitate transactions in the secondary market
HK$20 Billion Retail Bond Issuance Programme (cont.)
The issue obtained a satisfactory subscription result with a total application amount of HK$625 million
HKD 1-year notes (HKMC102) HK$177.7 million
HKD 3-year notes (HKMC311) HK$306.0 million
USD 1-year notes (HKMC103) US$10.7 million
USD 1-year extendable notes (extendable for 1 year and further extendable for 1 year) (HKMC312E)
US$7.5 million
Future Development
Reverse Mortgage Scheme
Home equity conversion mortgages Instead of making regular for the loan Receives a regular monthly installment When dies, repossess and sell the property Surplus → return to the homeowner's estate
Reverse Mortgage Scheme (cont.)
The feasibility is quite low Monthly payout is relatively low
∴ not too attractive Not too many HK people are familiar May be launched if matures
Future Business
Continue to launch 10-year Fixed Rate Mortgage Scheme
Launch Retail Bonds Issuance Programme Provide a better network and market-making
mechanism for the retail bonds Further develop MBS, MIP and retail bonds Develop mortgage-based and debt securities
market
Conclusion
Conclusion Aim: Mortgage financing market in HK
grows healthily Continue to meet its business targets Meet the needs of banking sectors and
homeowners Promote the development of the debt market
MC Questions
What is(are) the function(s) of HKMC?
A. Stability of the banking sector
B. Fund supply for mortgages
C. Promotion the debt securities market
D. All of the above
If the investors want to have a stable return, which class of note do they buy under the new issued MBS?
A. Class A-1 notes (fixed rate)
B. Class A-2 notes (floating rate)
C. (A) & (B)
D. None of the above
What is(are) the triple-win situation(s) of the 10 years Fixed-rate Mortgage Scheme?
A. provides an additional choice of mortgage financing
B. provides an effective avenue for procuring new mortgage businesses
C. diversify the mortgage portfolio
D. All of the above