E
C.S. 166
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11.
XCC(77)8
either (a) it was negotiated as a fixed proportion of the initial
loan (in the case of the foregoing example, the proportion would be 2/9ths of $90,000, or $20,000) and the mortgage outstanding reaches that proportion covered by the guarantee (i. e. when the mortgagor has paid off $70,000);
or
(b) an option is built into the mortgage enabling the
Government, on default, to take back the flat at cost and it is intended that this option will always be exercised.
It is not clear at the present time which of these possibilities should be implemented because it will be necessary to consult with lending institu- tions. The Working Party, however, considers the partial guarantee system to be a workable proposition and wishes to give it further and more detailed examination.
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As regards a mortgage bank, Rothschilds proposed:
(a) an institution which could tap all sources of funds
including those which do not at present participate in mortgage financing operations (e.g. corporate liquid funds, provident and pension funds, insurance com- panies);
(b) an institution which would, in addition, on-lend funds
within the guidelines recommended by the Working Party to eligible households.
The Working Party, in association with the consultants, has given some consideration to the way in which a mortgage might be set up, funded and operated. A note on the Working Party's present thinking is at Annex E.
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Proposals of The Hongkong and Shanghai Banking Corporation and Hang Seng Bank Limited. Shortly after the proposals for a mortgage bank and a scheme of partial guarantees had been considered by the Working Party, The Hongkong and Shanghai Banking Corporation and Hang Seng Bank Limited (hereinafter referred to as "the two banks") made a proposal to the Working Party for mortgage loans of 15 years at interest rates below current market rates. Their proposal was examined jointly at a meeting attended by some members of the Working Party and re- presentatives of the two banks.
CONFIDENTIAL
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