Land ministry panel proposes securitization of housing loans

Japan Policy & Politics, April 15, 2002

TOKYO, April 12 Kyodo

A land ministry advisory panel proposed Friday the government create a mechanism to promote securitization of housing loans to ensure a stable supply of funds to home buyers.

The proposal calls for Government Housing Loan Corp. to purchase housing loans from private financial institutions, and issue and sell to investors securities backed by the loans, panel officials said.

Revenue from interest on the housing loans would be distributed to buyers of the securities, they said.

The Land, Infrastructure and Transport Ministry panel said securitization would help diffuse the risk housing loan holders face from interest rate fluctuations by transferring such risk to investors.

The proposal would also help banks trim lending assets and credit risks, such as possible defaults on loan repayments.

After the government corporation is disbanded, within five years under current government plans, the new entity to replace it should take over the securitization operation, the panel said.

The corporation has for decades provided low-interest loans to home buyers in relatively low-income brackets, using funds from the state-managed pool of postal savings and pension funds.

Outstanding housing loans held by the corporation will be transferred to commercial banks after it is liquidated in five years, according to the government. But doubts have been raised about the ability or willingness of commercial banks to make loans to low-income home buyers.

The land ministry plans to submit a bill to amend the law governing the activities of the corporation to a regular Diet session next year, to give it the power to facilitate the securitization of mortgages starting in April 2003, ministry officials said.