The Korea Mortgage Corp. (Komoco), a South Korean government-backed entity created last year to jump-start a secondary mortgage market, recently announced plans to issue the country's first mortgage-backed issue before the end of March.

"We are targeting an issue of roughly W500 billion ($444 million) before the end of the first quarter this year," said Kwun Kyung Won, head of Komoco's business preparation and support teams in Seoul.

Komoco is arranging and issuing the debut issue, which will be backed by assets of the National Housing Fund, the biggest mortgage originator in Korea with more than 50% market share, said Kwun.

The International Finance Corp. (IFC) - the private lending arm of the World Bank - is providing technology and structuring advice, under an agreement inked last October in which the IFC will receive a 15% stake in Komoco in exchange for its expertise (ASRI 11/15/99, p.1).

The IFC has also invited more than one foreign bank to become technical partners, but Kwun declined to disclose which banks would participate.

Until now, mortgage-backed securitization in Korea has been stymied by a gray area in the 1998 securitization law, which implies that so-called keun mortgages - the most common type of housing finance in Korea - require the consent of individual obligors before they can be transferred to a special purpose company.

But Komoco has overcome that hurdle by notifying all the borrowers of its intent to sell their assets and giving a deadline before which obligors who object to the transfer must reply in writing.

"We are not asking for [obligors'] permission; if we don't receive written objections from them in 10 days, the transfer of assets becomes automatic," said Kwun. The final issue size also depends on how many people end up writing back with objections, he added.

If all goes as planned, Komoco will become a regular issuer of MBS in the domestic market. Four MBS issues are planned for 2000, and between three and four issues in subsequent years, said Kwun. Komoco has already sounded out domestic institutional investors and found their response to be very positive, he said.

Komoco's aim is to securitize mortgages purchased from banks and government-run housing loan funds. The Ministry of Transportation and Construction, which oversees the National Housing Fund, is Komoco's biggest shareholder with a 45% stake. Other shareholders besides the IFC include Kookmin Bank, Korea Exchange Bank, Housing & Commercial Bank, and Samsung Life Insurance.

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