The Hong Kong Mortgage Corporation Limited HKMC Background

The Hong Kong Mortgage Corporation Limited (HKMC)

Background information n Established in March 1997 n Wholly owned by HKSAR Government through Exchange Fund

Mission of HKMC n Enhance the stability of the banking sector n Reducing risks of mortgage lending of the banks n Promote wider home ownership

Content of our project n Compare development of HKMC with the mortgage-backed security markets in other nation n Recent development n Identify the difference between the two mortgage-backed securitization program

Aims of our project n Understand the HKMC n Project the future mortgage development

Securitization transferring fixed income or credit assets (e. g. Mortgage loan) to -special purpose vehicle (“SPV”) -special purpose company (“SPC”) by financial institution (the originator). n The SPV obtains funding by issuing debt securities. n

Securitization The Hong Kong securitization market started in may 1994 n Bank of America (Asia) & the assistance of Salomon Brothers Hong Kong n first public mortgage backed securitization in Hong Kong n

Securitization n securitization originated by the US n securitization not known by the Hong Kong people.

Securitization-Australia In 1984 the Queensland state government establishes n an unprecedented secondary mortgage market in Australia. n prudential standards for securitization schemes.

Securitization-Australia The Australian market mainly dominated by n <residential mortgage backed issues> The market now includes the following n credit card n consumer receivables n commercial leases

Securitization-Australia Infrastructure development n tax concessions is a temptation n The attractiveness of securitization in connection with raising finance of infrastructure financing. n SPV must -retain effective control -ownership of the facility (X>25 years) n

Securitization-Australia n n Projects should be approved by the Development Allowance Authority. there are 7 types of eligible project: ¨ Land transport facilities ¨ Seaport facilities ¨ Electricity generation facilities ¨ Air transport facilities ¨ Gas pipeline facilities ¨ Water supply facilities ¨ Sewerage or waste water facilities

H. K. Vs. U. S. n U. S. Non-traditional market expands since 2003

Non-traditional mortgage market Typically n Credit grades based upon on the person’s creditworthiness n Factors: credit history, debt ratio, income documentation n Categorized as A, A-, B, C, D

Non-traditional mortgage market At Present, n Left to human underwriters n Use their own judgment to categorize loan by risk level

Non-traditional mortgage market Use of computerized loan-evaluation systems n Forecast the default risk dictated by each mortgage n Determine the individualized interest rates charged to each borrower n

The Difference between the Guaranteed Mortgage-Backed Pass. Through Programme and Bauhinia Mortgage-Backed Securitisation Programme

Difference n Pass-Through Programme n Bauhinia Programme Date of Issue: Oct, 1999 Date of Issue: Dec, 2001 The Note holder : Originating Banks The Note holder : Institutional and retail Investors

Difference n Pass-Through Programme n Bauhinia Programme The currency of issue : HK The currency of issue: Dollar multi-currency The distribution network: Through HKMC The distribution network: Through dealer group

Trend and Recent Development of HKMC

Recent development of HKMC Residential Mortgage Loans (including Mortgage Loans with HKMC’s Guarantee)

Recent development of HKMC n HKMC has successfully issue a large number of mortgage loans to society n successfully achieve it goals

Recent development of HKMC The trend and recent development of Mortgage Insurance Program

Recent development of HKMC reasons n an expansion of Mortgage Insurance Program increasing maximum loan-tovalue ratio to 95% n the economy in Hong Kong has become better

Recent development of HKMC n The MIP has it contribution people buying houses. n The MIP is successful, already Insurance HK$ 1437757 million.

Recent development of HKMC Some recent new 10 -year Zero Coupon Bonds( HKMC 1001) at September 12, 2006. offered at a price of 65%

Recent development of HKMC Some recent new HKMC's Credit Rating (since July 2005) Moody's Short-term Long-term Foreign currency (Outlook) P-1 (stable) A 1 (stable) Local currency (Outlook) P-1 (stable) Aa 3 (stable) on Oct 30, 2006 Foreign currency rating to Aa 1 Local currency rating to Aaa