South Korea is set to launch a quasi-governmental mortgage corporation that will likely be the country's first issuer of mortgage-backed securities, the first step in its long-stated goal of creating a liquid secondary mortgage market.

The Korea Mortgage Corporation's (KMC) first target will be to securitize assets of the National Housing Fund, the country's biggest provider of mortgages, said Kwon Kyung Won, head of the KMC's business planning team in Seoul. "The government wants to securitize its portfolio through the KMC, which is why it is being set up at this time," he explained. Ultimately, the KMC's goal is to increase affordability of home mortgages for low to middle-income citizens, he added.

Ownership of the KMC will be split between the government and the private sector. Korea Exchange Bank, Kookmin Bank, Housing and Commercial Bank, and Hyundai Investment Trust Management Trust will each take a 15% percent stake in the new venture, while Samsung Life Insurance will have a 5% stake. The biggest owner will be the Korean government in the form of the Ministry of Construction and Transportation, which will own 35%. Initial capital is set for W100 billion ($84.5 million).

In addition, the International Finance Corporation (IFC), the private lending arm of the World Bank, has also expressed interest in buying up to 10% of the KMC, said Kwon. The IFC is now providing technical advice to the KMC and will recommend outside advisers to help structure an MBS issue, although no decision has been made yet, he added.

Since the KMC is still waiting to obtain a license from the Financial Supervisory Service, Korea's financial regulator, it is still too early to talk about the size and launch date for the first MBS. That approval is expected sometime in September, Kwon said.

Creation of the KMC follows the passage of a law in April allowing private entities to set up corporations backed by the government for the purchase and securitization of mortgages. The government hopes that such corporations will play a role similar to that of Fannie Mae in the U.S. by creating a deeper and more liquid housing market (ASRI, 4/19/99, p.1).

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