In what promises to be a significant boost for Japan's fledgling mortgage-backed market, the country's biggest mortgage originator announced its intention to issue its first securitization.

The Government Housing Loan Corporation (GHLC) plans to issue between 30-50 billion ($285-475 million) of mortgage-backed bonds before the end of March 2001, according to a draft plan released by the Ministry of Construction, which oversees the GHLC. The plan calls for the GHLC to transfer mortgages to a trust bank, which will issue bonds backed by payments on the mortgages for sale to institutional investors.

"Given the number of GHLC mortgages outstanding over 70 trillion once the GHLC starts securitizing its assets, the size of Japan's RMBS market would be very substantial, especially since it is expected to be a repeat issuer," commented Tokio Ueyama, associate director of structured finance at Fitch IBCA in Tokyo. A GHLC issue would also serve as a benchmark for future MBS deals, which would help develop Japan's mortgage-backed market, he added.

Securitization has long been a goal of the GHLC, which was formed in 1950 and now originates roughly a third of all mortgages in Japan. A mortgage-backed issue would allow the GHLC to diversify its funding sources and release money to originate more loans.

Currently, the GHLC and other government-linked agencies depend on the government for funding, in the form of money collected from the national postal savings scheme and public pension funds. But legislation is expected to change next year in order to allow the agencies to issue bonds, including mortgage-backed securities.

After one or two false starts, Japanese mortgage-backed securitization got off to a promising start with Sanwa Bank issuing the first successful MBS in May. Many market players had hoped that Sanwa would quickly pave the way for more bank-originated MBS deals, but most issuers seem to be in no hurry to securitize their mortgages.

However, a GHLC issue would give Japan's domestic mortgage market just the push it needs. "The GHLC's presence in the market would show governmental support for securitization, which would definitely encourage other governmental bodies and other issuers to participate," Ueyama noted.

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