ENG-2008 — Page 134

90 Financial and Monetary Affairs

Development of a Secondary Mortgage Market

A well-developed secondary mortgage market is useful in channelling long-term. funds, such as insurance and pension funds, to meet demand for long-term home financing. The HKMC was set up in March 2007 to carry out the following tasks:

• Promote the development of a secondary mortgage market in Hong Kong;

• Improve banking and monetary stability;

• Facilitate the development of the local debt market; and

• Promote wider home ownership.

In 2008, the Government authorised a threefold increase to $30 billion in the size of the Revolving Credit Facility offered by the Exchange Fund, underlining the important role the HKMC is playing. The enhancement of the Facility aims to provide the HKMC with the necessary funding to perform its role to purchase banking assets and contribute to financial stability in Hong Kong.

Asset Purchase Programme

Under the Asset Purchase Programme, the HKMC purchases assets from banks to facilitate their risk and balance sheet management. The HKMC is a key player in the secondary mortgage market. Its asset portfolio's outstanding principal balance at the end of 2008 amounted to $51.2 billion.

Mortgage Insurance Programme

The Mortgage Insurance Programme (MIP) was launched in 1999 to provide mortgage insurance cover to banks so that they can extend residential mortgage loans to homebuyers above the loan-to-value ceiling set by the HKMA. In 2008, the HKMC improved the programme by lowering the threshold above which insurance would be made available from the previous 70 per cent loan-to-value ratio (LTV) to 60 per cent up to a total LTV ratio of 90 per cent; and refined the eligibility criteria for 95 per cent LTV mortgages under the MIP.

The MIP has gained wide acceptance and promoted home ownership through. product diversification and improvements to servicing standards. At the end of 2008, over 117 800 applications had been received involving an aggregate mortgage loan of $238 billion.

Mortgage-backed Securities Market

The HKMC runs a back-to-back mortgage-backed securities (MBS) programme that provides a platform for banks to effectively repackage their mortgage portfolios into more liquid MBS. The HKMC also guarantees the timely payment of interest and repayment of principal for securitised mortgage loans.

The HKMC also runs a multi-currency Bauhinia MBS Programme that enables MBS to be used as collaterals for mortgage loans. A total of $3.1 billion of MBS were outstanding under this programme at year-end.