With the economy poised for recovery, some homeowners in negative equity may need to be allowed some breathing space. The banks may be in a position to help these homeowners and, in doing so, help themselves too.

This was the message from Monetary Authority Chief Executive Joseph Yam in his latest Viewpoint column posted on the authority's website.

Figures released today show that the number of residential mortgages in negative equity rose to 106,000 at the end of June.

Mr Yam said there seems to be some difference of approach in how individual banks in Hong Kong deal with mortgages that are, or are likely to become, delinquent.

"Some banks are quite proactive in working with the borrowers in difficulty to restructure their mortgages, so that they can cope with their short-term financial difficulties, which, the banks are confident, are likely to go away as the economy recovers and the property market bottoms out," he said.

With property prices falling 60% to 70% on average since their peak in 1997-98, the 30% cushion, useful as it has been, is gone for mortgages initiated a few years back.

"Many of them are now 'under water', so to speak, and significantly so, with an average shortfall in security of slightly over 20% of mortgage loans in negative equity."

Mr Yam said under present circumstances, in which the property market is suffering from a lack of activity and liquidity, banks' approaches in dealing with mortgages in danger of becoming delinquent may indirectly have a significant bearing on property prices.

"This is because the number of repossessed properties (nearly 4,000 in the past 12 months) being disposed of has probably become a big enough factor on the supply side to have exerted a significant depressing effect on property prices, in particular those in the secondary market," he said.

"It would, therefore, be in the interests of those banks which are not already doing so to give greater consideration to restructuring delinquent residential mortgages over foreclosure."