Slowly but surely, Japan's biggest mortgage originator is gearing up for its debut mortgage-backed deal.

The Government Housing Loan Corp. (GHLC) will issue a request for proposals from securities firms starting in April and select an arranger or lead manager for its inaugural MBS sometime before June, said sources in Tokyo. It will award the mandate based on competitive bidding after soliciting presentations and transaction ideas from major players.

Though domestic houses have continuously dominated Japan's asset-backed market since it took off last year, western firms should also get a fair shot at winning the mandate. "It won't automatically go to a Japanese house because the GHLC is a government entity, and they have to be very transparent about this in order to avoid showing favors to anyone," said one ABS head at a U.S. firm in Tokyo.

Since the GHLC announced last year it would issue its first MBS before the end of March 2001 (ASRI 9/20/1999 p.1), it has been gradually putting out its feelers in the market. In recent weeks, the GHLC has held regular study sessions in which it has invited securitization pros in Tokyo to give presentations about MBS. It has also hired IBJ Dai-Ichi Life Financial Technology to advise the agency on preparing its internal systems for securitization, said another ABS head in Tokyo, though a GHLC official declined to confirm if that was true.

Though the GHLC has clearly stated its intention to issue MBS, it has lately been sending out mixed messages to market participants. For example, the agency has reportedly shown interest in guaranteeing its own bonds, but that would require a rating of the GHLC itself, something which the agency earlier said it was unwilling to obtain (ASRI 1/31/00, p.1).

GHLC officials have also indicated that they may not want to use a pass-through structure, which is typical of MBS in the U.S. and other developed markets, but not yet widely accepted among domestic investors. "If the GHLC is really trying to set a benchmark for the market, they should aim for the most efficient structure, which is a pass-through structure," commented one ABS banker in Tokyo.

In any case, market participants are paying close attention to the GHLC, because of its huge business potential. It currently originates more than one-third of all mortgages in Japan and has mortgage assets exceeding 72 trillion ($661.4 billion). "They announced that they would do a securitization, do it in April, and then do it regularly afterwards. Obviously people are taking them very seriously," concluded one of the ABS heads.

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