XN000022-1996-04-15 — Page 2

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Consultation on mortgage corporation proposal

The Hong Kong Monetary Authority (HKMA) has issued a consultation paper on the mortgage corporation proposal today (Monday).

A seven-month study conducted by the HKMA, with the consultancy support from the US Federal National Mortgage Association (Fannie Mae), concluded that the setting up of a mortgage corporation in Hong Kong is both feasible and beneficial. The mortgage corporation is also expected to be profitable in the long term.

"The mortgage corporation will play a strategic role in providing structural enhancement to the present mechanism of home financing. It will intermediate long- term savings such as insurance and pension funds to meet the rising demand for long- term mortgages. The corporation will assist in promoting home ownership, improving banking and monetary stability and facilitating the development of the local debt market," said Mr Joseph Yam, Chief Executive of HKMA.

Quoting from the Fannie Mae consultants, the consultation paper says that "Hong Kong is in an enviable position compared to many other economies as the development of the secondary mortgage market is driven by a long-term vision, not in reaction to a crisis in the housing market or credit system".

In the consultation paper, the HKMA proposes to set up a mortgage corporation along the following lines:

Ownership Initially 100% owned by Government through the Exchange Fund

(i)

(ii)

Capital base: HK$1 billion

(iii) Structure of the corporation Limited company registered under the Companies Ordinance, with participation from both the public and private sectors on the Board of Directors.

(iv)

Business strategy: Business scope to be expanded in phases, starting with the purchase of mortgage loans for retained portfolio, followed by the issue of mortgage-backed securities.

The paper points out that initial government ownership will facilitate the acceptance of the mortgage corporation by the market. When the corporation has established a track record of profitability to command market confidence, a broadening of the ownership structure will be considered.