XN000022-1996-06-27 — Page 68

(b)

(c)

(d)

45

While the banking system has been playing a predominant role in the intermediation of mortgage funds, there is a major difference between intermediation by the banking system and that by a mortgage corporation. Banks rely mostly on short-term funding (e.g. short-term customer deposits and interbank deposits) to finance long term mortgages. A mortgage corporation, on the other hand, raises long-term funds to fund mortgage purchase, thus avoiding the maturity mismatch between its liabilities and assets. A mortgage corporation thus helps to improve the robustness of the home financing system.

As evidenced by the experience of mortgage corporations overseas, government support is essential for the successful operation of the corporation, especially at the initial stage, as this will greatly facilitate the acceptance of the corporation by the market. This view is shared by the banking sector and capital market participants.

The price of the debt securities issued by the mortgage corporation will be determined by the market.

Under the proposal, the mortgage corporation will issue unsecured debt paper in the first phase, followed by the introduction of the mortgage- backed securities (MBS). The unsecured paper will constitute the general obligations of the mortgage corporation. The MBS will be backed by a pool of mortgages. The revenue generated by the mortgage pool (i.e. payment of principal and interest by mortgagors) will be passed onto the MBS holders. Both the unsecured paper and the MBS issued by the mortgage corporation will not be guaranteed by the government.

unsecured,

The Exchange Fund Notes constitute the

the direct, unconditional and general obligations of the Hong Kong Government for the account of the Exchange Fund.

As far as we are aware, Cagamas Berhad, the national mortgage corporation in Malaysia, is 20% owned by the Bank Negara Malaysia (the central bank of Malaysia). The remaining equity is owned by other financial institutions. It is registered as a company under the Companies Act. FANMAC Limited of Australia is 25% owned by the State of New South Wales and the remaining equity is owned by financial institutions. It has been incorporated as a private company since its inception in 1986. The Federal National Mortgage Association (Fannie Mae), the largest mortgage corporation in the USA, was set up and initially wholly owned by the US Federal Government. It was partitioned into two separate entities in 1968. Fannie Mae became a listed company whereas the Government National Mortgage Association (Ginnie Mac) remains a government agency.