What The Hong Kong Pilot Program Says About Reverse Mortgages

The Hong Kong Mortgage Corporation recently approved a reverse mortgage pilot program

to be launched and available to Chinese senior homeowners in 2011. The popularity of reverse mortgages has officially gone international.

A reverse mortgage pilot program is coming to Hong Kong in 2011 after The Hong Kong Mortgage Corporation Limited (HKMC), a wholly-owned Chinese government corporation and faction of the Hong Kong Monetary Authority, conducted a survey of over 1,000 homeowners who are at least 60 years old and own a home in Hong Kong. The respondents must have owned their home outright or owed very little on the remaining mortgage at the time the survey was conducted in October of 2010.

The idea was to gauge the interest of Chinese homeowners have in taking advantage of a state-run reverse mortgage program that would allow the elderly to convert the homes equity into a cash loan that can be used by the borrower for any purpose. After about 44% of those surveyed responded they supported the introduction of reverse mortgage in Hong Kong, the HKMC board approved the proposed reverse mortgage pilot for launch in 2011.

In addition to the overwhelming interest of the unique financial transaction that allows seniors to borrow against the equity but still maintain ownership of the home, about 25% of those homeowners surveyed said they would participate in a reverse mortgage. The proposed reverse mortgage program in Hong Kong is nearly identical to the reverse mortgages found here in the U.S.

Under the Chinese program, borrowers can opt to receive monthly annuity payments over a fixed period of 10, 15 or 20 years or over their whole life span, while agreeing to be responsible for the ongoing property maintenance as well as the settlement of rates, government rents and management fees. As it is in the U.S., the loan does not come due until a borrower has passed or moves out of the home, at which point, the bank will take possession to recoup the loan principle and interest.

In much the same way as the U.S. reverse mortgage industry operates, borrower education will be a key issue and component of the pilot programs success. It will be important, the HKMC said in a press release, that an effective pre-sale counseling mechanism is constructed and maintained to ensure that the borrowers will have a good understanding of their rights and obligations before drawing a reverse mortgage loan.

The introduction of a reverse mortgage program in Hong Kong will provide additional means to obtain steady cash flows and improve a seniors standard of living while staying in their own home during retirement. And although the Chinese economy is sizzling these days thanks to artificially undervalued currency that boosts exports and a GDP thats booming in the double-digit figures, social upheaval resulting from crushing income gaps and a poorly funded and neglected social system is growing to alarming levels.

Nevertheless, the adoption of a reverse mortgage program in Hong Kong indicates the growing popularity among seniors and the elderly population of this unique financial transaction from all walks of life and backgrounds.

by: Leonard H. Franklin

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