Conforming Loan Helps Stabilize Household Loans and Improve Bond Market Structure

- KHFC holds a seminar on promoting securitization as the mortgage loan structure changes -

It was argued that the proliferation of conforming loans contributes significantly to the stabilization of household debt. It was also claimed that the qualitative structure of the long-term bond market is improving as KHFC issues MBS.

The Korea Housing Finance Corporation (KHFC, CEO Seo Jong-dae) announced on October 31 that a seminar themed on “Promoting Securitization in Response to Changes in Mortgage Loan Structure” was held at the KCCI building in downtown Seoul.

At the seminar, Prof. Cho Man of KDI School of Public Policy and Management made a presentation titled “Overview and Policy of the Mortgage Market in Korea.” He said, “As the volume of conforming loans, first launched in March this year, increases (the loans reached KRW 7.6216 trillion as of the end of September), the structure of mortgage loans, which mainly had floating-rates and lumpsum repayment, shifts to fixed-rate, installment repayment programs, which in turn contributes greatly to stabilizing household debt.”

Prof. Cho said, “Conforming loans are fixed-rate, long-term loans in which principal or principal and interest are paid back in equal installments. The average duration of the loan is 18.7 years, and the average LTV is very stable at 48.3%.” He suggested that “In order to support low-income households, product designs should target end users in their 20s and 30s or the low-income segment.”

Prof. Park Yeon-woo of Business Administration at Jungang University made a presentation on “Overview of the Securitization of Mortgage Loans and Plans for its Development.” He pointed out that the percentage share of MBS issuance in the bond market has increased 3.6 times from 0.9% in 2004 to 3.2% in 2012. In particular, in mid/long-term bonds with at least 5-year maturity, the percentage share of MBS vs. treasury bonds increased 3.5 times from 4.6% in 2004 to 15.9% in 2012. He believes that KHFC has done much to improve the qualitative structure of the long-term bond market by organically connecting the mortgage loan market with the capital market by issuing MBS.

Regarding this seminar, “We will reflect a range of opinions suggested at the seminar when improving and managing the securitization of mortgage loans in the future and make on-going efforts to render the housing situation for low-income households more secure and advance the capital market,” said an official at KHFC.