Mortgage Securitization in Hong Kong and Asia

1. Premise - "One precondition for developing a fixed-rate mortgage market was the existence of a fixed-rate debt market." Explain.

This premise means that the fixed-rate mortgage market is based on the fixed-rate debt market. The existence of the fixed-rate debt market leads to the fixed-rate mortgage market and it supplies liquidity for the fixed-rate mortgage market. A fixed-rate debt is the debt with fixed interest. A fixed-rate mortgage is a mortgage loan where the interest rate on the note remains the same through the term of the loan. In my opinion, the fixed-rate mortgage loan is a kind of the fixed-rate debt. If there is no fixed-rate debt, there will be not fixed-rate mortgage loan. What is more, with the existence of a fixed-debt market, we can securitized the mortgage loans as backing assets, then create the mortgaged back securities.

2. International Models - Review the U.S. structure for government agency participation in the development and maintenance of mortgage capital markets. Explain the series of steps taken to create the U.S. system. Compare them to the structure adopted in Hong Kong.

According to the Wiki, I can get the history of development of the mortgage capital markets. After the Great Depression, as a part of the New Deal the federal government of the United States created the Federal Housing Administration (FHA) with the National Housing Act of 1934 to assist in the construction, acquisition, and rehabilitation of residential properties. The FHA helped develop and standardize the fixed rate mortgage as an alternative to the balloon payment mortgage by insuring them, and helped the mortgage design garner usage. In 1938, the government also created the government-sponsored corporation Federal National Mortgage Association (FNMA), colloquially known as Fannie Mae, to create a liquid secondary market in these mortgages and thereby free the loan originators to originate more loans, primarily by buying FHA-insured mortgages. Using the pooled mortgages as backing, Fannie Mae issued new debt-based securities. In 1968 Fannie Mae was split into the current Fannie Mae and the Government National Mortgage Association (GNMA), colloquially known as Ginnie Mae, to support the FHA-insured mortgages, as well as Veterans Administration (VA) and Farmers Home Administration (FmHA) insured mortgages, with the full faith and credit of the United States government. In 1970, the federal government authorized Fannie Mae to purchase private mortgages, i.e. those not insured by the FHA, VA, or FmHA, and created the Federal Home Loan Mortgage Corporation (FHLMC), colloquially known as Freddie Mac, to perform a similar role to Fannie Mae. Ginnie Mae does not invest in private mortgages. The outstanding amount of US treasuries was around US$3,126 billion. The mortgage market had been the second-most important debt market in the United States.

In my opinion, Hong Kong learned the