Korean-Style JTYK MBS Should Be Considered

- JTYK is effective in lifting seniors out of poverty, making it worthwhile to consider introducing a mortgage trust system
- The MBS market contributes to market stabilization during an economic recession or financial crisis
- HF holds the ‘2017 Housing Finance Seminar’

It is argued that in order to ensure a sustainable supply of JooTaekYeonKeum (JTYK) reverse mortgage loans, a mortgage trust system should be considered and that Korean-style JTYK MBS should be issued to bring down the JTYK interest rates. In addition, it is assessed that the nation's MBS market, whose capitalization has surpassed the 100 trillion won mark, can contribute to market stabilization during times of economic recession or financial crisis.

These opinions were presented at the 2017 Housing Finance Seminar held under the theme ‘The present and future of housing finance’ by Korea Housing Finance Corporation (HF, CEO Kim Jae-Chun) at the Seoul Chamber of Commerce and Industry on the 6th.  

Korean-style JTYK MBS should be considered

   - JYTK found effective in reducing the elderly poverty rate    
   Professor Choi Hyung-Seok of Ewha Womans University said in his presentation entitled ‘JTYK's accomplishments and its role in the age of ageing,’ “If the fund can be raised at a low interest rate, this can lower the rates of the JTYK reverse mortgage loans. To this end, there is a need to consider issuing a Korean-style JTYK MBS modelled after HMBS.” Professor Choi went on to say, “As the demand for JTYK is expected to increase, it is desirable to proactively consider how to stably supply the reverse mortgage loans and how to effectively utilize the collateralized residential units.” He also stressed that “Consideration should also be given to expanding the existing method of acquiring the collateral to a mortgage trust system.” Furthermore, he added that to improve the poverty rate among the elderly without putting much financial burden on the government, the JTYK reverse mortgage program should be promoted.  

The expected downward trend in housing prices does not affect prospective JTYK subscribers

   - Senior citizens should be given more options to use their property for a future income stream  
   HF Research Fellow Koh Je-Hun said in his presentation entitled ‘The analysis of reasons for not subscribing to JTYK and their implications,’ “Considering the income level and asset structure of the nation's senior citizens, there is a huge group of prospective JTYK subscribers. But, given the patterns of their asset utilization, JTYK subscription may grow a bit slowly.” He also added, “And amid uncertainties, the patterns will not change without a clear change in their saving tendencies and their intention to leave an inheritance.” Moreover, he said that since there are still a great number of seniors who don't understand what JTYK is, which is especially true among low-income seniors, there is a pressing need to provide seniors with more retirement finance education and entice them to actively utilize their assets by offering incentives in consideration of the social utility of JTYK. 

   Professor Lee Yong-Man of Hansung University said in his presentation entitled ‘The effect of seniors' intention to leave an inheritance on their JTYK subscription’ that although it is desirable for retirees to create cash streams from their assets, in reality, they hold their assets untouched and, at the same time, save money in their bank accounts. He pointed out that their strong intention to leave their house to their children discourages them from subscribing to JTYK. Saying that the gloomy prospects for house prices did not affect seniors' willingness to subscribe to JTYK, he said that it is necessary to seek ways to raise funds to better prepare for a possible increase in JTYK subscription in the future.

MBS issuance can contribute to market stabilization during a recession or financial crisis

   - Pricing through a reasonable model necessary to stimulate the MBS market 
   Hwang Se-Woon, General Manager of Korea Capital Market Institute, said, "During times of financial crisis and economic recession, rapidly increasing MBS issuance could drive up market rates. But, this does not depress private investment. Rather, it can contribute to market stabilization. So, considering this positive effect, MBS issuance strategies should be formulated.” He went on to say, “For the sustainable growth of the MBS market, the market needs to be revamped to raise the share of pass-through MBS* and introduce the TBA (To-Be-Announced)** market.”
   *  Pass-through MBS: A servicing intermediary collects the monthly payments from issuers and, after deducting a fee, remits or passes them through to the holders of the pass-through security.
   ** TBA (To-Be-Announced): Forward MBS trades

   Professor Jang Bong-Gyu of POSTECH presented a pricing model for pass-through MBSs, which have recently been introduced in the nation, saying that for a robust MBS market, pricing based on a reasonable model is necessary. He took, as an example, the U.S. MBS market whose volume has now reached that of its bond market. But before 2000, MBS transactions were not common. And it was only after 2000 when MBS transactions grew sharply with institutional support through RP* and reliable pricing by big investment banks.  
   * RP: The sale of a security combined with an agreement to repurchase the same security at a higher price at a future date.

The presentations were followed by in-depth discussion presided over by Professor Sohn Jae-Young of Konkuk University. The discussion was participated in by Professor Ryu Geun-Gwan of Seoul National University; Professor Koh Sung-Soo of Konkuk University; Jeon Byung-Mok, Director of Korea Institute of Public Finance; Im Jin, Research Fellow of Korea Institute of Finance; Lee Jong-Seo, Managing Director of Mirae Asset Daewoo Securities; Kim Sung-Ho, Research Fellow at Korea Insurance Research Institute; and Song Wan-Young and Kim Hyun-Joon, HF Research Fellows.

An HF official said, “This year's Housing Finance Seminar was held to celebrate the 10th anniversary of JTYK and the amount of MBS issued surpassing the 100 trillion won mark and to seek measures to improve the JTYK program for its further development in the future. The opinions presented at the Seminar will help formulate future policies to promote the advancement of JTYK and the MBS market.”