Citic Ka Wah Bank - pioneer of a 140 per cent home loan - yesterday unveiled a mortgage package designed to help home-owners escape a negative equity trap and buy a new house.
The aggressive bid to capture new home lending business was expected to add about 800 mostly new customers and HK$1 billion to the mid-tier lender's HK$13 billion mortgage loan portfolio, Lorraine Lam Lau Tak-mi, the bank's senior vice-president and head of retail banking said.
The 'SuperFirst Mortgage Home Switching Flexi-plan' announced by Mrs Lam followed on the launch earlier this year of a 140 per cent negative equity refinancing scheme which to date had secured more than 1,000 applicants for loans totalling HK$1.3 billion, the bank said.
The exposure of the bank itself to such borrowers is limited to the 70 per cent loan-to-valuation ceiling monitored by banking regulator, the Hong Kong Monetary Authority.
But by parcelling together a loan product that includes insurance offered by the Hong Kong Mortgage Corp as well as unsecured top-up finance provided by a third-party special purpose vehicle called Pan Asian Mortgage Co, Citic Ka Wah earlier this year offered a first of its kind 140 per cent loan to enable negative equity home-owners to refinance their existing properties at lower interest rates.
Negative-equity home-owners are borrowers who have seen the value of their homes fall below the size of their loans. Until Citic Ka Wah introduced its pioneering scheme, that meant such home-owners found it difficult to refinance their properties at the record low mortgage rates now on offer, because the collateral they could offer - the houses they occupied - was insufficient to secure a new loan.
The result was that they were paying much higher interest rates on their loans than home-owners who provided the banks with sufficient collateral.