HF confirms its Relief Loans Securitization methods
- Date 2015-04-17
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HF confirms its Relief Loans Securitization methods
- The market expected to stabilize as the basic directions for its home loan securitization have been confirmed-Korea Housing Finance Corporation (HF, CEO Kim Jae-Chun) announced on the 17th that it has confirmed the basic
directions for the securitization of 34 trillion won of its Relief Loans, including the criteria for determining the issuing
interest rates, and is now in talks with the loan-offering banks to work out the details.
According to the basic directions, the banks transferring the loans would acquire mortgage-backed securities (MBS)
secured by the loans either through non-competitive equity sales* for MBSs with maturities of 1, 2, 3, 5, and 7 years
or through competitive bidding first and, non-competitive equity sales later** for MBSs with maturities of 10, 15,
and 20 years. In the case of these long-term MBSs, the banks are to purchase the same amount of MBSs later as those
sold to the market during the first competitive-bidding phase.
* The size of the loan sales by each loan-offering bank is determined by allocating MBSs into different tranches
in proportion to the amount of underlying assets transferred by them.
** The Relief Loans held by the banks are first offered for sale in the market using a competitive bidding process,
and the loans remaining unsold are allocated to the banks using a non-competitive equity sale method.
The issuing interest rates for MBSs with maturities ranging from 1 year to 2 years, 3 years, 5 years, and 7 years are
to be calculated by combining the rates on Korea treasury bonds with comparable maturities and the issuing spread.
The issuing spread is to be determined by combining the spread on recently issued MBSs (the average value of
the five most recent batches of MBS issuances with the lowest and highest values excluded) and variations
in the spreads of AAA-rated public bonds issued for special purposes.
At the same time, the issuing interest rates for MBSs with maturities of 10 years, 15 years, and 20 years are to be determined
through competitive bidding as in the existing MBS bidding process. It has been decided, however, that a cap will be placed
on the issuing spreads.
The first batch of MBSs secured by the Relief Loans will be issued on May 12, 2015 (Tuesday), and the MBSs purchased
by the loan-offering banks since March 24, 2015 will be counted into the amounts of their respective purchase
of Relief Loans MBSs.
An HF official said, “We are considering an overseas issuance to secure overseas demand. We expect the market
to stabilize quickly as we have confirmed the methods for the securitization of Relief Loans.”