Despite a much weakened property market, residential mortgage-backed securitizations in Hong Kong have performed very well to date, concluded Moody's Investors Service and Standard & Poor's in separate reports.

All MBS deals rated by both agencies have outperformed the industry average, despite the stresses on the economy over the past two years. These have included a record high unemployment rate, most recently at 6.3%, and a slump in residential property prices 41% down on their 1997 peak. "No default has ever occurred on a mortgage included in a Hong Kong RMBS rated by S&P, and delinquency rates have stayed very low," said S&P in its report.

Performance of domestic MBS has been stable and has not succumbed to the worsening economic climate, although the delinquency ratio climbed slightly since last year, agreed Moody's. In the domestic MBS deals it rated, only three foreclosures have occurred all in the pool backing German HK Residential Mortgage Funding 1998-1 Ltd. but proceedings were completed in seven months, it added.

More residential MBS deals are unlikely in the near term, due to originators' cautious approach to lending and increased competition for new, high-quality residential mortgages. "Originators are seeking new mortgages, which are their best assets. There's no interest in selling them now," commented Kyson Ho, associate director of structured finance at S&P. Such competition could lead to lower credit approval standards, which would require higher levels of credit enhancement, he added. - VC

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