A stern warning issued by Hong Kong's banking regulator on banks' over-exposure to the property sector has prompted at least six financial institutions to consider securitising their residential mortgage loans. Standard and Poor's (S&P) managing director Paul Coughlin said there would be a surge in the number of mortgage-backed securities in the fourth quarter. He said the rating agency was already in discussions with half a dozen investment banks on potential securitisations. 'The letter issued by the Hong Kong Monetary Authority has played a big part in this upsurge,' Mr Coughlin said. The letter - issued in late July - warned banks of excessive exposure to property-related lending and warned it would hold the banks' management liable for any reckless expansion. Banks have been scrambling to offload part of their residential mortgage portfolio by resorting to securitisation, a process in which the underlying assets are securitised into debt paper and sold to institutional investors. Banks also increased mortgage rates by between 25 and 50 basis points to rein in growth of their property-related portfolios. S&P joint managing director Calvin Wong said some investors had expressed dissatisfaction with the unexpectedly short maturity of the securitised paper. 'It is the responsibility of investment banks to price the deal appropriately,' Mr Wong said. He conceded the deals were experimental in nature and S&P was considering an alternative product to reflect such risk. 'We have given a lot of thought to a new product that addresses market risk,' he said. Apart from the securitisation of residential mortgages, the rating agency said there was talk of securitising commercial properties and credit card receivables. Mr Wong said it was more difficult and time-consuming to conduct commercial mortgage-backed securities. 'It takes more time to do due diligence because the properties are like mini-corporations and you have to get familiar with each of them,' he said.