Our Ref. : M1/15C

21 November 2000

The Chief Executive

All Authorized Institutions

Dear Sir/Madam,

The policy statement on LoLR support announced by the HKMA in June 1999 sets out three basic instruments for providing LoLR support to a troubled institution, one of which is the provision of a credit facility against the security of the institution’s residential mortgage portfolio. In accordance with the policy statement, preference will be given to HOS/PSPS mortgages and Hong Kong Mortgage Corporation compliant mortgages above other residential mortgages. It is noted, however, that the use of HOS/PSPS mortgages as collateral for LoLR support is subject to the Housing Authority ("HA")’s prior written consent to the approved lender to assign, transfer, sub-mortgage or further charge the HOS/PSPS mortgages to the HKMA under the relevant deeds of guarantee executed between the HA and the institution.

In this connection, we would like to inform you that the HKMA has recently secured consent from the HA to allow institutions which are also approved lenders under the HOS/PSPS to assign, transfer, sub-mortgage or further charge their HOS/PSPS mortgages together with the benefit of HA’s guarantee to the HKMA for LoLR support purposes. Such consent would cover both primary and secondary HOS/PSPS mortgages. In the near future, those institutions which have existing participation in the HA’s HOS/PSPS scheme will receive a letter from the HA advising that consent has been given for the institution to assign, transfer, sub-mortgage or further charge any HOS/PSPS mortgages together with the benefit of the guarantee to the HKMA as collateral for LoLR support. With such consent in place, institutions will not need to seek any further consent from the HA before assigning, transferring or

sub-mortgaging or further charging HOS/PSPS mortgages to the HKMA for LoLR support purposes.

We wish to emphasize that this arrangement is not targeted at particular authorized institutions but, rather, is devised to enhance the effectiveness of the LoLR framework for the benefit of the banking sector as a whole. The HKMA appreciates the cooperation of the HA in allowing this arrangement to be put in place.

Should you have any enquiries, please contact Mr Kim Chong at 2878 1848.

Yours faithfully,

(D T R Carse)
Deputy Chief Executive