Interest Rate Hike Shrinks Real Estate Market... Mortgage-Backed Securities Issuance Halved in First Half of Year

ABS issuance in the first half of the year 24.1 trillion won... 32% decrease
Housing Finance Corporation MBS issuance down 48% to 11.9 trillion won

[Asia Economy Reporter Ji Yeon-jin] The issuance volume of mortgage-backed securities (MBS) in the first half of this year has been halved. This is the result of a combination of reduced housing mortgage loans due to a 'transaction cliff' and weakened investment sentiment caused by ongoing interest rate hikes and housing price decline forecasts since last year.

The Financial Supervisory Service announced on the 27th that the issuance amount of asset-backed securities (ABS) in the first half of this year was 24.1 trillion won, a decrease of 11.3 trillion won (32%) compared to the same period last year. ABS are securities issued based on underlying assets such as housing mortgage loans, banks' non-performing loans, and securities firms' corporate bonds, and are products mainly invested in by institutions including insurance companies.

Mortgage-backed securities (MBS) issued by the Korea Housing Finance Corporation, which are based on housing mortgage bonds, decreased by 10.9 trillion won (48.1%) compared to the same period last year, with 11.9 trillion won issued. A Financial Supervisory Service official explained, "This is due to the deterioration of MBS supply and demand conditions caused by the reduction in policy mortgage supply following the interest rate hike trend and the weakening of investor sentiment among MBS investors." MBS are issued based on loans borrowed by homebuyers using policy financing such as the Bogeumjari Loan, but with a sharp decline in housing transactions, fewer borrowers are using loans. Additionally, with the forecast of falling real estate prices and the possibility of losses due to price declines during further interest rate hikes, supply and demand have contracted.

Financial company ABS issuance amounted to about 7.9 trillion won, an increase of 100 billion won compared to the same period last year. While issuance based on bank non-performing loans (NPL) was 1.1 trillion won, down 18.7%, P-CBOs based on securities firms' corporate bonds were issued at 3.1 trillion won, down 2.8%. On the other hand, installment finance receivables based on securities firms and others increased by 13.9%.

Additionally, issuance based on terminal installment receivables and real estate project financing (PF) decreased by 10.3% compared to the same period last year, amounting to 4.3 trillion won.

The total outstanding issuance of ABS stood at 228.8 trillion won as of the end of last month, down 0.3% compared to the same period last year.

This content was produced with the assistance of AI translation services.