□ Korea Housing Finance Corporation (HF, CEO Kim Jae-Chun) announced on the 25th that it has issued mortgage-backed securities (MBSs)* in a pass-through manner.

* A pass-through MBS involves a transaction process where the principal and interest repaid by debtors of mortgage loans are paid to investors, except for some fees. This is standard practice in the US, Japan, and other countries. Payment schedules of MBSs and mortgage loans are consistent, making future cash flow more predictable.

□ The bid-to-cover ratios for pass-through MBSs put up for bidding on the 23rd were 500% for 2-year, 162% for 5-year, and 263% for 20-year maturity MBSs.

□ An HF official stated, "HF will comprehensively consider whether to expand the issuance of pass-through MBSs and improve their issuance structure depending on market participants' feedback. MBSs are presently available at eight maturities* and all will be issued in the pass-through manner for the time being to prevent investor confusion due to sudden changes. Ongoing improvements to MBSs are expected, and these should make them even more attractive to investors, particularly because market participants have shown great interest in an improved MBS valuation model. The model has evolved in the process of introducing pass-through MBSs, and the system for these derivatives has been established."

* MBSs are presently issued at the eight maturities of 1, 2, 3, 5, 7, 10, 15, and 12 years. MBSs with maturities in excess of five years have call options.

□ In order to attract more investment into pass-through MBSs, HF affirmed in consultation with bond rating agencies that the yield on MBSs is calculated based on expected maturity rather than statutory maturity. HF releases detailed information such as cash flow of MBSs by its disclosure system K-MBS (http://kmbs.hf.go.kr).