Hong Kong's de facto central bank will formally cut out law firms as the middlemen in the transfer of residential mortgage payments, as it establishes a pilot plan to make remittances easier, faster and protect property buyers.
The pilot plan will commence immediately after the conclusion of a six-month public consultation and in-depth discussion with the city's banks and law firms, according to Arthur Yuen, deputy chief executive of the Hong Kong Monetary Authority (HKMA).
"The change will speed up the mortgage payment process, and most importantly, safeguard borrowers [from] suffering losses, lest their money gets frozen by legal firms that end up in [financial] trouble," Yuen said.
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The plan, coming at the end of a public consultation first unveiled in December, covers about 2,500 mortgage transfer valued at HK$10 billion (US$1.27 billion) every month, or 30 per cent of all mortgage lending cases. As many as 25 law firms became insolvent over the past 10 years, trapping more than HK$530 million of funds by 1,500 homebuyers in escrow, requiring them two years on average to get their money back, according to a Legislative Council document and court papers.
Arthur Yuen Kwok-hang, Deputy Chief Executive of Hong Kong Monetary Authority (HKMA), at a media briefing on granting virtual banking licenses on 27 March 2019. Photo: Xiaomei Chen alt=Arthur Yuen Kwok-hang, Deputy Chief Executive of Hong Kong Monetary Authority (HKMA), at a media briefing on granting virtual banking licenses on 27 March 2019. Photo: Xiaomei Chen>
Hong Kong's regulations required all mortgage payments to be transferred via legal firms between the bank accounts of the buyer and the seller. Under the pilot, banks will be able to transfer approved mortgage loans directly, bypassing the law firm.
The risk of money trapped in escrow caught the public's attention after a high profile case in December 2020. The Law Society, which regulates some 120,000 solicitors and 900 law firms, closed down Wong, Fung & Co and froze its bank accounts after a former clerk at the firm had misappropriated an unspecified sum from clients. The company handled 4.9 per cent of the city's second-hand property transactions in 2019.
The pilot was announced by the Hong Kong Association of Banks (HKAB) to all its 160 members, opening the way for all 20 banks that are currently active in Hong Kong's mortgage business to take part, Yuen said.