that they are reluctant to commit funds for a long-term project such as the HOS, the real rate of interest on which will be eliminated by infla- tion. This is, to some extent, supported by reports that local banks are being more restrictive in granting residential mortgages and are requir- ing higher downpayments and shorter pay-back periods.
Means to Cover the Shortfall
7
In order to fulfil Government's commitment that mortgage funds will be made available for eligible flat purchasers who require assistance, a way must be found to make up the forecast shortfall of at least $1010.5 million.
8
The different methods which have been considered include: establishing a Mortgage Agency; the Government borrowing the necessary resources either in Hong Kong or overseas; the Government providing part of its accumulated fiscal reserves; and altering the terms of the existing scheme to bring in more funds. These methods are considered in turn below.
Mortgage Agency
9
A prominent feature in the 1977/78 discussions with the banks referred to in paragraph 2 above was the proposal for a Mortgage Agency which would be set up to raise money from the open market - by taking deposits and issuing bonds - to on-lend to flat purchasers. The banks saw the idea of the Agency as a possible threat to their business and status and objected to it strongly: it was partly in reaction to this threat that the banks agreed to advance money directly to the purchasers.
10
In February 1977, when considering memorandum XCC(77)8, Members advised that legislation to provide for the establishment of the Mortgage Agency should be prepared, but should not be brought into operation until required. First and second drafts of the necessary bill were accordingly prepared, but then shelved. It is arguable whether the idea of the Mortgage Agency should now be resurrected since the banks reacted to the "threat" of a Mortgage Agency by agreeing to commit their own funds to the HOS, and since the Government reacted to the banks' agreement by shelving the plans for a Mortgage Agency; the Government would be accused of breaching an implicit understanding with the banks, if it were now to revive the earlier plans. The banks would argue that the shortfall on the Home Ownership Scheme is not the fault of the banking sector and it would be difficult to contest the view that it results from unforeseen changes in economic and monetary circumstances since the
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