140pc loans may help home owners
The Hong Kong Mortgage Corporation is considering introducing a scheme to allow homeowners in negative equity to refinance their mortgages by borrowing up to 140 per cent of the value of their property.
The scheme would allow homebuyers to cover their original mortgage with the new loan at today's lower interest rates.
The corporation is in talks with banks to allow homebuyers to exceed the standard mortgage cap of 70 per cent of the value of a property, provided they take out a special insurance policy.
The banks would cover the risk of default on up to 90 per cent of the value of the property, with the remaining risk covered by the HKMC's insurance policy, a corporation source said.
Homebuyers wishing to take out the insurance would have to pay a one-off fee of four to five per cent of the value of their loan.
Many homeowners are victims of negative equity - when the value of a property is less than its mortgage. The situation mainly affects people who bought homes in the pre-1997 economic boom, only to see prices plummet over the past five years.
Many borrowers in negative equity also took out their mortgage loans when interest rates were much higher. Some property owners still find themselves paying almost 10 per cent interest on their mortgages.
Homeowners would be able to save money by negotiating the new loan at a lower interest rate. The rate on new mortgages now is between four and five per cent.
One banker said the new insurance programme could be difficult to administer because of the HKMC's need to share the risk of default with the banks.
Also, it would be difficult for the HKMC to hedge its exposure since mortgages equal to 140 per cent of the value of a property would be considered very risky.
A HKMC board meeting today will discuss the proposal.
Sources said it would be some time before the HKMC decided whether to go ahead, with the plan expected to generate controversy.