- Investor Relations
- Mortgage-backed Securities (MBS)
- FAQs about MBS
FAQs about MBS
(Q1)What are the main characteristics of MBS issued by JHF?
(Q2)What are the main characteristics of the loan pool?
(Q4)How are MBS treated when housing loans default?
(Q5)What kind of credit risks do JHF MBS pose?
(Q6)How is the over-collateralization level determined?
(Q7)What events cause a beneficiary interest?
(Q9)What kinds of loan data are disclosed?
(Q12)How is the rate for loans in the underlying asset pool determined?
(Q13)Are rating agency reports available?
(Q14)In what amounts and how frequently are JHF MBS issued?
(Q16)What is an incorporated administrative agency ?
(Q1) What are the main characteristics of MBS issued by JHF?
Mortgage-backed Securities issued by JHF(JHF MBS) have the following basic characteristics:
- Consists of standardized and qualified loans purchased from all over Japan, reducing the risk of geographical concentration (see Q2)
- Asset-backed Zaito (FILP) agency bond (see Q3)
- Credit risk posed by the securitized housing loans is undertaken by JHF (see Q4)
- 'AAA' ratings acquired via " overcollateralization" (see Q5-Q7)
- Redeemed by monthly pass-through repayment of principal and interest from the underlying loan pool, depending on the outstanding trust pool balance (see Q8)
- Proactive disclosure facilitates MBS analysis and investment (see Q9)
- Two types, Monthly MBS and S-series MBS, are issued in series (see Q10 and Q11)
(Q2) What are the main characteristics of the loan pool?
- JHF purchases loans from private institutions all over Japan, which reduces the risk of geographical concentration of credit risk in a loan pool.
- All the loans in a particular pool for a monthly MBS will be subject to same eligibility standards by setting criteria for loans transferred from private institutions.
- Only loans that meet the eligibility criteria (loan execution date, DTI, etc.) are included in the loan pool, facilitating MBS cash flow analysis.
(Q3) What is a Zaito agency?
A Zaito agency is a government agency that carries out public policies by receiving loans, investments, and/or loan guarantees from the "Fiscal Investment and Loan Program(FILP)" managed by the Ministry of Finance (MoF). Zaito Agency bonds are debt securities issued by such agencies.
Please visit MoF's website at: http://www.mof.go.jp/english/filp/index.html for more details.
(Q4) How are MBS treated when housing loans default?
- Loans that are delinquent by up to three months in the trust pool are not regarded as "defaulted" loans. Such loans are treated as if the principal and interests are paid as scheduled and the timely payments of principal and interest will be made by JHF to the investors.
- In the case of loans past due four months or longer:
1) For Monthly MBS (issued from April 2007), such "defaulted" loans in the trust pool will be subject to full prepayment of principal and interest, and dissolved from the trust pool.
2) For Monthly MBS (issued before April 2007) and S-series MBS, such "defaulted" loans in the trust pool will be replaced with sound loans.
(Q5) What kind of credit risks do JHF MBS pose?
The credit quality of JHF MBS issued as Zaito agency bond is mainly based on JHF's responsibility to make timely payment of both principal and interest, while once events causing a beneficiary interest occur, it solely depends on the quality of trust assets.
- Before events causing a beneficiary interest occur:
JHF sets up trusts for purchased or originated loans as a third-party beneficiary trust that designates a group of MBS holders as the beneficiary, and issues MBS by pledging the trusted loans as collateral. Before events causing a beneficiary interest occur, JHF is held responsible for the timely repayment of principal and interest on the MBS by passing along the proceeds from the loan pool. Accordingly, the credit quality of MBS is mainly based on JHF's ability to make timely payment.
- After events causing a beneficiary interest occur:
The MBS in question is redeemed, with the outstanding notes replaced with beneficiary trust certificates backed by the trust loan pool, and issued to legitimate beneficiaries ("true sale" to MBS investors). Overcollateralization is used to ensure that the pool has sufficient funds to meet the payments on the certificates in case of events causing a beneficiary interest.
(Q6) How is the over-collateralization level determined?
Rating agencies assume events causing a beneficiary interest when estimating the overcollateralization ratio required for 'AAA' ratings at the issuance of MBS. Based on these ratios, a sufficient level of overcollateralization is provided.
For the overcollateralization level of outstanding JHF/GHLC MBS, please refer to the relevant pages of our website at: Outstanding MBS
(Q7) What events cause a beneficiary interest?
Holders of JHF MBS are entitled to exercise their beneficiary rights when certain events occur. The four events in which beneficiary interests can be exercised are defined as follows:
- Dissolution of JHF without an entity appointed to take over the payment obligations for the JHF MBS.
- Dissolution of JHF where the entity appointed to take over the payment obligations is a kabushiki gaisha (joint stock corporation), or laws are applied so that the appointed legal entity is allowed to file for corporate reorganization or other similar bankruptcy proceedings.
- The obligor of the JHF MBS become a joint stock corporation or a legal entity to which file for corporate reorganization or other similar bankruptcy proceedings can be applied.
- The failure by JHF to fulfill a payment obligation with respect to the MBS or any other bonds issued or succeeded by JHF, and the failure is not cured within 7 days.
(Q8) How are JHF MBS redeemed?
- Before events causing a beneficiary interest occur:
Proceeds from the trust loan pool are passed along as the repayment of the MBS principal. The amount of MBS redeemed in a given month is determined according to the amount collected from the trust loan pool two months prior.
The portion of trust loans remaining after reserving the balance equivalent to the required overcollateralization rate relative to the MBS balance after the payout is passed on to the JHF (pro rata pass-through structure).
JHF has the right to redeem entire remaining balance of MBS once it is paid down to 10% or less of the initial issue amount ("clean-up call").
- After events causing a beneficiary interest occur:
Investors receive every month all remaining amount collected from the loan pool, net of expense and trust dividend, as principal repayment ("turbo redemption"). Only after the entire principal has been paid to the investors and the beneficiary right has expired, JHF is given the residual asset that has been served as overcollateral by trustee ("sequential pay structure).
(Q9) What kinds of loan data are disclosed?
- Data on trust loan pool
Every month, JHF discloses data on Factor, CPR, WAC, WAM, and replacement/partial cancellation etc. in a series by pool. JHF also releases data on rescheduled factors by pool, and provides updates every six months after the issuance of the MBS. The designated underwriters issue their estimates of prepayment rates. In addition, JSDA issues statistical distribution of prepayment in the PSJ model based on estimates made by the underwriters twice every month. Data on loan attributes, including the LTV and DTI, are updated every six months (available only in Japanese).
Please refer to the relevant pages of our website at: Factors and Loan Data for more details.
- Data on loan redemption
Historical redemption data on GHLC loans succeeded and held by JHF is provided through information vendors such as Bloomberg and Reuters (available only in Japanese).
(Q10) What are Monthly MBS?
- JHF pools housing loans purchased from private financial institutions every month, entrusts the loan pool, and issue MBS backed by the loan pool the following month (12 issuances annually).
- Monthly MBS have an average life (AL) of 8-10yrs, and are benchmarked to the 10yr JGB issued most recently.
(Q11) What are S-series MBS?
- S-series MBS are backed by housing loans originated by the former GHLC.
- It is part of the JHF's financing scheme to redeem borrowings from the FILP ahead of schedule, and funds procured by the MBS issuance are earmarked for debt repayment.
- S-series MBS have an average life (AL) of about 8yrs, and are benchmarked to JGB with similar years to maturity.
(Q12) How is the rate for loans in the underlying asset pool determined?
Housing loan rate in month xx
=(10yr JGB rate in 25th of month xx-1)+(MBS’s spread in month xx-1)+(charge for JHF)+ (servicing fee)
(Q13) Are rating agency reports available?
JHF's website has links to rating agencies' websites that specifically provide reports on individual deals as well as special reports on the structure of JHF MBS.
Please refer to the relevant pages of our website at: Credit Ratings
(Q14) In what amounts and how frequently are JHF MBS issued?
Please refer to the relevant pages of our website at: Outstanding MBS
(Q15) Organization of JHF
Incorporated Administrative Agency (IAA) fully capitalized by the Japanese government
(Q16) What is an incorporated administrative agency ?
Incorporated Administrative Agencies (IAA) were incorporated under the law for the purpose of executing government policy more efficiently.
Key characteristics include:
- Chairman and auditors are appointed by the responsible minister.
- Medium-term objectives (covering a three- to five-year period) are set out by the responsible minister, and the IAA devises a medium-term plan based on the objectives. The responsible minister approves the plans.
- The evaluation committee in the responsible (supervising) ministry submits views on the business and operational documents, medium-term objectives, and medium-term plans of the IAA to the responsible minister, and provides its evaluations of the IAA's business and operational results, medium-term objectives, and the medium-term plans annually.
- Disposal of key assets and loans needs to be approved by the responsible minister.
- The government may inject capital in IAAs and/or provide financial assistance for the full or partial amount necessary for their operation.
- Dissolution of an IAA would require that the Diet pass a new law.
(Q17) What were/are the main operations of GHLC and JHF?
JHF was established to take over the rights and obligations of the GHLC.
- The GHLC has supplied long-term fixed-rate housing loans based on loans from the FILP since 1950.
- Established in April 2007, the JHF purchases long-term fixed-rate loans from private financial institutions for securitization, or guarantees the timely repayment of principal and interest on MBS backed by long-term fixed-rate loans originated and pooled by financial institutions.
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