The Hong Kong Mortgage Corp (HKMC) is planning changes to its buying rules that could result in a vast increase in its business, a confidential document obtained by Business Post has revealed. A proposed pilot scheme would relax the corporation's buying criteria for home loans and bring a 'huge portion' of the $478 billion residential mortgage market within its reach. The move is seen by some observers as a precursor to a stock-market listing since it would help the HKMC meet the exchange's profit requirements. However, there are fears it could intensify the mortgage-price war and increase risks to the financial system by encouraging banks to make more risky loans. The HKMC was set up by the Government in 1997 to buy home loans from banks and repackage them into tradable securities. The corporation - modelled on the United States' Fannie Mae - allows banks to spread or offload the risks of their mortgage portfolios and helps to channel funds to the mortgage market. However, the HKMC's growth has been hit by the downturn and subsequent slow recovery of the Hong Kong property market. It had mortgage assets of $11.39 billion at the end of last year. Under the blueprint for the six-month pilot scheme, the HKMC will buy riskier loans that do not conform to its standard purchasing criteria. According to the document presented to the HKMC board, potential relaxations include: Increasing the maximum individual loan size from $5 million to $8 million; Increasing the debt-to-income ratio to 60 per cent from 50 per cent; Accepting mortgages taken out by borrowers with insufficient proof of income, provided their past repayment record is good; and Increasing the maximum loan maturity and age of the property above the existing combined ceiling of 45 years. The pilot scheme will be confined to a $750 million to $1 billion pool of non-conforming mortgages initially, with the results to be evaluated by the HKMC board. A banker close to the HKMC management said the relaxations would intensify the already severe mortgage price war. 'The relaxation actually means the corporation will position itself as the underwriter of most of the mortgages in the market,' he said. 'This will create a chicken-and-egg situation inviting foreign banks with no prior exposure to the local mortgage market to step into the businesses of originating home loans in anticipation of selling some of them to the corporation. 'This will intensify the competition for mortgages.' The relaxation is widely believed to be a move to help the HKMC to achieve the uninterrupted three-year profit record needed for a main-board listing. The HKMC has yet to announce its results for this year but evidence suggests its profitability has been hurt by the intense competition over mortgages. HKMC chief executive Peter Pang Shing-tong last week disclosed that active mortgage refinancing had resulted in $2 billion of its mortgage loan assets being repaid before maturity. When that sum is subtracted from the total of $1.25 billion of new mortgages bought this year, the HKMC actually saw a $750 million shrinkage in assets. Acquisition of more revenue-generating assets has therefore been one of the top priorities for HKMC management. Sin Chung-kai, an HKMC director and legislative councillor, said there was nothing wrong with the HKMC's objective of seeking profits and a listing on the stock exchange. 'My bottom line is that the HKMC should not be doing things to increase the level of risks of the overall system. It has not come to that point yet,' he said.