Conforming loans now available in all commercial banks

- Conforming loans handled in all commercial banks in just six months since launch

- Long-term, fixed-rate conforming loans now available in any commercial banks

- Monthly average of 1.8 trillion won expected from September, with annual total of 11.5 trillion won

The Korea Housing Finance Corporation (KHFC, CEO Seo Jong-dae) announced August 20 that it signed business agreements with Woori Bank and KEB to offer conforming loans. As a result, all nine commercial banks in Korea except regional banks will handle fixed-rate conforming loans in their branches from September 2012, allowing customers to conveniently take out the loan without changing their primary bank.

※ Conforming loans

Conforming loans are long-term, fixed-rate mortgage loans offered using funds that the KHFC finances to financial institutions by issuing mortgage-backed securities (MBS). By lowering the risk arising from a rise in interest rates and fall of home prices, the loan is characterized by enhanced resilience to financial risks and stability in the housing financial market.

With all commercial banks now handling conforming loans, customers can choose from a variety of long-term, fixed-rate conforming loans from one of the banks of their choice.

Following the launching of conforming loans by Standard Chartered Bank and Citibank in March 2012, five more commercial banks (Nonghyup, Hana, IBK, Kookmin, and Shinhan) have launched conforming loans in the subsequent six months.

While the housing market remains depressed, a total of 4 trillion won has been supplied in conforming loans. Of that total, 70 percent were taken out to replace existing short-term, variable rate mortgage loans with fixed-rate conforming loans. Conforming loans seem to transform the mortgage loan market structure from one largely characterized by short-term, variable rate mortgages to one with long-term, fixed rate mortgages as they have become established as the mainstream in the housing finance market.

Conforming loans have become popular as they allow borrowers a low rate of around 4 percent while offering banks a new, stable revenue model without the risks of interest rate changes or liquidity shortages.

With Woori and KEB on board, KHFC expects a monthly average supply of 1.8 trillion won of conforming loans from September 2012, with the total supply reaching 11.5 trillion won by the end of this year.