june 28, 2011, ulaanbaatar, mongolia (former ghlc: the government housing loan corporation) workshop...
TRANSCRIPT
June 28, 2011, Ulaanbaatar, Mongolia
(Former GHLC: the Government Housing Loan Corporation)
Workshop on Housing Finance, APUHF
Technical Session III: Experience with Secondary Mortgage Market Operators Session to deliberate on developments and experience of the secondary mortgage markets, linkages & issues and scaling up
Development of Secondary Mortgage Market in Japan
Masahiro Kobayashi,Chief Economist, Global Market
Incorporated Administrative Agency Japan Housing Finance Agency (JHF)
2
Reform of Japanese Mortgage Market
GHLC
Borrowers
Fixed Rate Mortgage
Treasury
Loan with Prepayment Penalty
GOJSubsidies
BanksARM
DepositorsDeposit
JHF
Borrowers
Investors
BanksARM
DepositorsDeposit
Banks and Mortgage Banks
MBS
F35
20thCentury
21stCentury Sell Loans to JHF35 year Fixed Rate Mortgage
Adjustable Rate Mortgage
Government of Japan
GHLC: Government Housing Loan CorporationJHF: Japan Housing Finance Agency
Mortgage Backed Security
3
Stakeholder Challenges Solutions
BorrowerUncertainty about the holder of note
•Clarified that loan will not be negotiated beyond JHF
OriginatorBanks were not willing to originate F35.
•Encouraged the establishment of mortgage banks (New distribution channel)•Gave incentives for originators by liberalization of servicing fee•Standardization of documentation and data transmission system•Worked with legal firms and accounting firms regarding extinguishment of loan
InvestorInvestors were not familiarized with MBS.
•Achieved investor confidence by enhancement of transparency through disclosure in a satisfactory manner•Credit enhancement via over-collateralization and achieved AAA rating•Conduct JHF RMBS non-deal road shows to both domestic and overseas investors
What were the challenges to develop secondary mortgage market?
4
3
7
15
21
2426 26
0
5
10
15
20
25
30
2004 2005 2006 2007 2008 2009 2010
Number of Accredited Mortgage Banks
(Source) JHF
These 26 mortgage banks accounts for 50-60 % of total F35 origination while remaining 40-50% are originated by 300+ depository institutions.
5
Number of loan applications for F35
(Source) JHF
805
17,173
59,573 59,40952,995
41,772
81,320
174,087
0
50,000
100,000
150,000
200,000
FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010
With the expansion of distribution channel (mortgage banks), mortgage origination for F35 increased gradually. But there was some policy support needed to go further.
6
(Source) JHF
Market Share of GHLC and JHF (Mortgage at Origination)
Mortgage origination for F35 has increased gradually, but its market share is still below the level of Direct Origination of GHLC in 1990’s.
0%
10%
20%
30%
40%
50%
1990 1995 2000 2005 2010(YTD)
F35
Direct OriginationAverage of 1990's: 36%
GHLC JHF
7
Reduction of CO2 emission through enhancement of energy efficiency of housing structure
Grade 4
Grade 3
Grade 2
Grade 1
Corresponding energy efficiency grade under House Quality Disclosure System
( 10 years interest discount)
Reduce emission of CO2 by 800kg( around
23%)
※Criteria for insulator is based on the case around Sapporo
High-grade glass wool 230㎜
High-gradeGlass wool135㎜
Paired glass
High-grade glass wool 135㎜
High-grade glass wool 110㎜
High-gradeGlass wool85㎜
High-grade glass wool 85㎜
1980 standard (Old
energy efficiency criteria)
1999 standard ( Next
generation energy efficiency criteria)
【 F35】 S
【 F35】
【 F35】 S - incentive mechanism to supply energy efficient houses -
Blinds etc
8
35 years
10 years
2.50%
1.50%
subsidies
Image of incentives for F35 S
F 35 Fixed Rate Mortgage funded by MBSF 35 S Fixed Rate Mortgage funded by MBS + Enhancement of Energy Efficiency via subsidy
Note) Figures listed above are indicative ones. Interest rate on F 35 varies depending on market conditions as well as the servicing fee which each lender charges individually.
Assumption:Original Loan Balance 30 million yenInterest Rate 2.50%1% discount for F 35 S Initial 10 yearsTerm 35 YearsPrepayment 0
Total amount of repayment over 35 yearsF 35 45,044,539F 35 S 41,933,480Difference 3,111,059
9
Consumer Protection:Fixed Rate Mortgage
Capital Markets Development:Standardized MBS
Reduction of CO2 Emission:Incentive to enhance house quality
F35 S funded by JHF MBS
Policy orientation and approach – rationale for scaling up
Challenge: Sustainability of Subsidy under Fiscal Constraints
10
Before an Beneficiary Certificate Trigger EventBefore an Beneficiary Certificate Trigger Event
Investors
Make timely payment of both principal and interest based on JHF’s responsibility
Trust banks
Trust asset
JHF MBS
JHF
Loans to be securitized Proceeds from
the trust loan pool are passed along as the repayment of the MBS principal.
JHF MBS – some similarity with Covered Bond
After an Beneficiary Certificate Trigger EventAfter an Beneficiary Certificate Trigger Event
Dividend based on beneficiary right
JHF
Occurrence of event causing a beneficiary interest
JHF MBS
Beneficiary(investors)
Beneficiary right
Trust bank
Trust asset
Note :Beneficiary certificate trigger events1. The obligor of the JHF MBS becomes a joint stock corporation or a legal entity to
which file for corporate reorganization or other similar bankruptcy proceedings can be applied
2. The failure by JHF to fulfill a payment obligation with respect to the MBS is not cured within 7 days
JHF MBS is an asset-backed Zaito bondBefore any beneficiary certificate trigger event , interest and principal are paid by JHF, as if MBS is a corporate bonds
The credit of JHF MBS is supported by both the credit of JHF and the credit of housing loan pool Due to Japanese government's policy to maintain flexibility against the borrowers, JHF will recognize the housing loans
on the balance sheet even after the MBS is issued After an beneficiary certificate trigger event , JHF MBS, a Zaito bond, will be replaced with the beneficiary right Risk weight of JHF MBS, as a Zaito bond is 10% under standardized approach By selecting a corporate bond format, JHF contributes to the development of secondary markets
These materials have been prepared for the sole purpose of providing information to our investors and not as an offer, sale or inducement to buy or sell bonds.
We urge investors when they are making investment decisions regarding bonds to carefully confirm details of the conditions, content, and structure of the final products in the latest product prospectus prepared for the issuance of the relevant bonds as well as any other most recent available information and accordingly assume personal responsibility for their decisions.
(Former the Government Housing Loan Corporation)