HF to expand supply of long-term, fixed-rate mortgage loans

- HF to step up measures such as the issue of covered bonds to stablize housing for the working class -

In a press conference held at the Korea Federation of Banks in Myeongdong on July 27, 2010, Housing & Finance (HF) CEO Joo-jae Lim said that HF will make mortgage-backed covered bonds one of Korea's major index debt securities and promote the u-Bogeumjari loan as one of the nation's top mortgage loan products. He also shared HF's plan to increase the share of long-term, fixed-rate loans in the mortgage market structure, in which mortgages are predominantly variable-rate loans, in an effort to increase stability in the housing finance market.

“By issuing more statutory covered bonds, HF can help the financial sector achieve substantial savings in the cost of financing foreign currency funds while promoting more long-term, fixed-rate mortgages in Korea's housing finance market,” said Lim. To achieve this objective, HF plans to issue foreign currency-denominated covered bonds two or more times a year and use these issuances as an efficient means of funding u-Bogeumjari loans with an interest rate switch option. Lim also said, “If HF's covered bonds become established as an index debt security, thereby leading to lower initial entry costs, HF will be able to secure foreign financing at a cost of about 1%p less than the cost incurred by local financial institutions."

“Over 90% of the mortgages in Korea are variable-rate mortages. A rise in market interest rates and a fall in housing prices can lead to a higher interest rate burden for the working class and have a negative impact on banks' asset soundness. This, in turn, can cause serious unrest in the market," he noted. “By issuing covered bonds, HF can support financial institutions secure long-term funding and increase the share of long-term, fixed-rate mortgage loans. This can help enhance the stability of the housing finance market. HF will also be a new channel of foreign funding for the public sector. “

In addition, HF will further increase the share of long-term, fixed-rate mortgages by offering Bogeumjari mortgage loans with more competitive terms. For example, the u-Bogeumjari loan released last month is a fixed-rate product with a rate as low as the variable rate of mortgage loans offered by banks. Lim added, “We are also trying to simplify the procedure for submitting supporting documents for loan qualification. For example, we are currently working with the government to develop an online submission of resident registration and income information. Once this is complete, the u-Bogeumjari loan will become a truly ubiquitous financial product. ”

HF is also working to grant 'exceptional guarantees' for people with poor credit so that they can get jeonse deposit loans from banks. HF will develop and implement an exceptional guarantee product enabling banks to lend jeonse deposit funds to those with an annual income of 30 million won or more who are currently not eligible for the National Housing Fund. For those having a poor credit rating of 10, the benchmark for rejecting credit guarantees, HF will classify those with a relatively low guarantee risk with the rating of 9 so that they can become eligible for credit guarantees.

<Photo> In a press conference held on July 27, 2010 at the Korea Federation of Banks in Myeongdong, HF CEO Joo-jae Lim explains HF's plans to stabilize the housing market for the working class.