Additional mortgage payment option sees law firms' middleman role skipped

Home buyers will be able to skip pass law firms as the middleman when transferring their mortgage loan between banks with a newly added payment arrangement announced on Wednesday.

When customers switch their mortgage plans to a new bank, they could choose to allow the new bank to directly transfer the mortgage loan proceeds to the original mortgage bank via the interbank payment system, without appointing law firms to keep the mortgage money first.

Currently, the loan proceeds will first be transferred from the new banks to law firms and held custody. The law firms will then arrange and clear off the buyers' repayment of the original mortgage loan.

The Hong Kong Association of Banks said the additional payment arrangement is part of the digital journey of the banking industry which aims to enhance customer protection. Providing direct electronic bank-to-bank transfer of mortgage loan funds better protects home buyers against any unforeseeable circumstances where buyers' money is frozen.

Earlier, a law firm staffer used a client's money without authorization and the firm was taken over by the Law Society of Hong Kong and all assets were frozen.

With the mortgage fund kept by the firm frozen by authorities, home buyers could not continue their transactions and landlords couldn't receive their money after selling the property.

The Hong Kong Monetary Authority (HKMA) said that the new arrangement is also applicable to other refinancing scenarios such as changing borrowers for a mortgage loan provided by the same mortgage institution, and cash-out from a mortgage-free property, etc.

“Selected banks conducted a pilot run in the second quarter of this year, during which a series of pilot mortgage refinancing transactions using the new payment arrangement had been smoothly completed.

“As a result, the banking industry has today announced the expansion of the pilot arrangement to all licensed banks offering residential mortgage loans,” said HKMA deputy chief executive Arthur Yuen Kwok-hang.

“Licensed banks offering residential mortgage loans will provide customers who are seeking mortgage refinancing with the option of the payment arrangement within this year, and will introduce the details to relevant customers in due course,” a statement read.