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The two schemes are not mutually exclusive. For instance it is possible to combine them to suit circumstances where institutions tradi- tionally providing mortgage finance (banks and finance companies) are not able to provide sufficient loan finance to meet the demand and other sources of funds (for example, insurance companies, provident funds) have to be tapped through the Government mortgage institution.
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Lying between the two extremes is a range of possibilities. These could include, for example, a scheme by which lending institutions are able, on the basis of a partial default guarantee by the Government, to lend more than they would otherwise be prepared to lend, at interest rates which eligible households could afford.
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The Working Party
Summary of Rothschilds' Recommendations. instructed its consultants (N. M. Rothschild and Sons (Hong Kong) Limited) to devise a scheme which would result in sufficient loan finance being made available on the mortgage terms outlined in paragraph 17. Rothschilds produced for the Working Party two parallel schemes based
on:
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(a) the creation, by the Government, of a statutory, non-
profit-making mortgage bank; and
(b) the provision of a partial guarantee to those commercial
banks willing to provide loans on the recommended mortgage terms.
Rothschilds came down in favour of creating a mortgage bank because their initial impression was that the banks would not wish to be involved, in a significant way, in direct lending operations. But they did not rule out the possibility of the banks being so involved on terms speci- fied by the Government and on the basis of a partial default guarantee.
In
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Rothschilds proposed a partial guarantee scheme designed to enable lending institutions partly to lend beyond the amount they usually lend on the basis of their judgement of commercial risks and partly to reduce the interest rate on the overall loan to or below 9% a year. other words, if an institution is prepared to lend only $70,000 against a sale price of $100, 000, the difference between lending $90, 000 and $70,000 would be covered by the guarantee. This partial guarantee could be in respect of a constant proportion of the mortgage amount outstanding: in the case of the example just given, it would represent 2/9ths of the amount outstanding at any time, but the absolute amount covered by the guarantee would decline as the loan moved towards maturity. On the other hand, the partial guarantee could assume the nature of a full guarantee if:
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C.S. 166
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