HF makes significant improvement in disclosure system for MBS investors

Information on estimated cash flow will now be available, together with further information on early payback; support for quantitative analysis by investors is projected to boost the demand for and promote the distribution of MBSs

Korea Housing Finance Corporation (HF) announced on the 31st that it has overhauled the investor information disclosure system on mortgage-backed securities (MBS) to boost investor demand, promote the MBS distribution market and facilitate relevant analysis.

※ HF issues MBSs in eight different tranches (i.e. sub-items) spanning one year to 20 years. Especially for five-year or longer-term tranches, it holds call options in order to offset the risks of underlying assets (a set of mortgage loans; hereafter referred to as “pool”) being paid back early.

For tranches with call options, a higher early payback rate shortens the actual duration of MBSs. Therefore, analysis on the characteristics of the underlying assets for each pool—including the early payback rate and other information affecting the cash flow—provides critical information affecting returns on MBS investment.

HF has previously released only the monthly early payback rate*, but from now on more segmented figures will be offered (i.e. quarterly, semiannual and annual average early payback rates). Also to be provided is information on the average maturity, average interest rate and collateral location of underlying assets (or loan balance) as well as the loan-to-value (LTV) rate at the time of loan extension and recent LTV figures. The information can be arranged in sequential comprehensive views or graphs, enabling easy and intuitive analysis.
    * Monthly early payback rate = Amount paid back prematurely during the month ÷ loan balance at the end of the previous month

As a result, the Pool-Specific Characteristics—released so far on HF’s official website (http://www.hf.go.kr) have become further expanded and easier to understand.

In the past, the estimated maturity of MBSs was announced only upon their initial issuance, but the cash flow of all MBS tranches will now be estimated under three different scenarios of early payback and their estimated duration announced every quarter. Calculated based on HF’s exercise of MBS call options, the “estimated future cash flow” will help investors manage their funds efficiently.

     

The enhanced disclosure system will first be offered on terminals for the media on which the system was built (i.e. Bloomberg) starting July 31st. Once HF completes its current website renewal project, the system will become available on its official website as well.

“The recent improvement in the MBS investor disclosure system is in line with the Government 3.0 policy in which quantitative analysis on estimated duration and other information is deemed essential,” stated one HF official. “By enhancing the investment disclosure system, we can now boost the demand of investors, for whom quantitative analysis on estimated duration and other factors is a must. We also have in place the basic infrastructure for MBS distribution.”