July 10, 2015

South Koreas residential mortgage securitization increased dramatically in the first half of 2015, due to a Government policy to stimulate borrowers to move to less risky mortgage instruments.

In March 2015, the Government of Korea allowed borrowers to switch from short-term floating rate housing loans to long-term fixed-rate amortizing mortgages (FRM), during a limited period of time.  Encouraged by the lower interest rate environment, a large number of borrowers transferred into FRMs.

The Government made an initial amount of US$33.5 billion available for the purchase of these FRM through the Korea Housing Finance Corporation (KMFC), a public finance company. KMFC issued more than USD34 billion Residential Mortgage Backed Securities (RMBS) in the first half of 2015, more than three times the amount it issued during the entire previous year. KHFC can provide guarantees on its RMBS up to 50 time shareholder equity, which stood at US$1.56 billion as of December 2014.  

South Korea has recently approved a mortgage bond framework, which will be an alternative vehicle for long-term funding.