In Japan, the proposed bill on establishing an independent agency to replace the Government Housing Loan Corp. is expected to pass during the current session of the DIET (Japan's legislature).

In a related development, GHLC completed its first MBS of 2005 and 27th in total at the end of January. The 30 billion ($283.5 million) offering, which has a 10.24-year expected average life and legal final of 35 years, priced at 1.72%, around 36 basis points over government bonds. The spreads were five basis points outside GHLC's previous issue. Analysts attributed this directly to GHLC's increased MBS issuance plans in 2005, with investors demanding a better pick up going forward.

GHLC accounts for 30% of the country's mortgage industry through its long-term fixed rate loan program, but has drawn criticism for crowding out private mortgage providers. With economic recovery in Japan still in its early stages, the government is keen to support the private sector, hence the changes to GHLC.

The new entity, scheduled to replace GHLC in 2007, will support securitization programs of private sector institutions and provide other forms of financial assistance. However, it will only be able to originate loans in areas affected by natural disasters.

The reorganization of GHLC will occur in two stages. In order that the new agency inherits no debts at inception, once the bill is passed the government will inject 500 billion of tax revenues - spread over five to 10 years - to cover loan defaults.

After the government assumes all its assets and liabilities, GHLC will have to fund itself purely through MBS issuance. Consequently, GHLC will increase MBS issuance to 2.05 trillion in 2005 from the 1.5 trillion raised in 2004.

Staying in Japan, following record volumes last year, 2005 has started in much the same fashion. According to Merrill Lynch's ABS research unit, over 300 billion worth of new transactions were launched in January, with repeat issuers such as Nippon Shinpan, Hitachi Capital Corp, Orix Corp., JCB Company and Sumisho Lease Company all tapping the market.

February looks equally promising with a number of MBS deals in the works, plus an interesting upcoming 100 billion CLO backed by loans extended to Japan's 21 Kyosai Kumiai (Savings and Loan Associations) by the Federation of National Public Servicers and Affiliated Personnel Mutual Aid Associations.

Copyright 2005 Thomson Media Inc. All Rights Reserved.

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