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SCMP Reporter

Hong Kong will have a fully-functional mortgage corporation headed by the Financial Secretary within a year.

It will be responsible for alleviating a projected massive shortfall in mortgage financing.

After two months of market consultation, the territory's de facto central bank, the Hong Kong Monetary Authority, yesterday gave the go-ahead to establish a mortgage corporation wholly owned by the Government.

While comments submitted by 23 organisations were in general favourable to the proposal, the issue of a possible conflict in the role played by the central bank caused considerable concern.

 Monetary Authority chief executive Joseph Yam Chi-kwong said that he would not be the chairman of the corporation.

'Rather, the Financial Secretary will chair the corporation and I will be one of the directors,' Mr Yam said.

Stressing that the authority's participation would be minimal, he reiterated that the authority would not use the corporation as a tool to regulate bank mortgage lending policies.

Responding to the suggestion that the corporation be subjected to the oversight of a regulatory authority other than the central bank, Mr Yam said he did not see the need for doing so.

'The corporation will function like a private company borrowing money from the market,' he said.

'The difference is that we borrow a bigger amount than most companies.' He said the corporation would not have any franchise or monopoly in the business.

 The paper it issued would be governed by the framework used to protect investors.

'The Government, through the Monetary Authority, would act as the overseer of the corporation, although the day-to-day management would be subject to the direction of the board of directors,' Mr Yam said.

The composition of the board had not been decided, but Mr Yam said he preferred a small-sized group for flexibility - about 10 directors with a majority from private sectors.

Initially, the corporation, set up in the form of a private company, would have a capital base of $1 billion injected by the Exchange Fund. The corporation would develop its business in two phases, starting with the purchase of mortgage loans from commercial banks and in turn issuing straight bonds.

Mortgage-backed securities would follow once the operation was on track and market conditions proved fitting. The pressing task ahead was to draft the corporation's memorandum and articles of association and finalise the organisational structure.

 Buying and servicing standards on mortgage loans, an information technology system and the asset and liability management mechanism would have to be tackled. A mortgage corporation typically buys residential mortgage loans and funds its purchases through the issue of debt securities.

 The authority projected a huge shortfall of $788 billion would emerge in 2005 in home financing as demand for funds far outstripped supply.



Financial Secretary to head body with $1b start-up capital from Exchange Fund