Business description

1. Outline of JHF business

Support business
Securitization business:

Support private financial institutions to generate a steady supply of

long-term fixed-rate housing loans

Housing loan insurance business:

Support private financial institutions loan issuance by providing loan

insurance

Information business
Housing information and consultation services:

Provide information about housing loans and residences

to enable borrowers to select the most appropriate loan

Supplemental business
Loan origination business:

Provide direct loans for the limited use of disaster mitigation or urban
rehabilitation, which are important for the public welfare but not
feasible through the private sector

Management of outstanding loans:

Appropriately manage outstanding loans succeeded from GHLC

2. Securitization business Agency Conduit Model

Securitization business (Agency Conduit Model)
JHF purchases housing loans from private financial institutions and entrusts them to trust banks
JHF issues mortgage-backed securities (MBSs) using the loans as collateral, and obtains the proceeds from the
capital markets (see the illustration below)
By using this structure, private financial institutions can provide long-term fixed-rate housing loans
These housing loans satisfy the criteria provided by JHF and will be transferred to JHF when the loans are
executed
This structure is similar to the Federal National Mortgage Association ( Fannie Mae) in the US
4. Provide long-term fixed
rate housing loan
Borrowers

1. Apply for loan

Number of contracted financial institutions (as of Oct 1, 2007)

5. Sellout housing loan
Private
financial
institutions

9. Payment for
purchased loan

Type

6. Entrust loans

City banks and trust banks

2. Apply for
inspection of
construction

10. Pay principal &

interest (including
prepayment)
3. Issue a certificate of
conformance

11. Hand over

money collected
Trust banks

8. MBS
proceeds

Inspection
institution

Percentage

46.2%

Regional banks

62

96.9%

Second-tier regional banks

40

88.9%

162

56.4%

Credit associations

19

11.3%

Labor banks

12

92.3%

Credit federation of agricultural

cooperatives

11

26.8%

Insurance companies and

mortgage banks

24

336

Shinkin Banks

7. Issue MBS

12. Repayment
of Interest &
Principle

Number

7. Collateral
Investors

Total

2. Securitization business Government Conduit Model

Securitization business (Government conduit model)
JHF underwrites insurance for long-term fixed-rate housing loans made by private financial institutions
JHF guarantees the timely payment on MBSs which are backed by those loans (including the beneficiary
certificate of such loans trusted)
The structure is similar to the Government National Mortgage Association (Ginnie Mae) in the US
12. Guarantee timely payment of
principal and interest

5. Mortgage insurance

Borrowers

4. Provide long-term
fixed rate housing
loan

Private
financial
institutions

11. Reimbursement

1. Apply for loan

2. Apply for
inspection of
Construction

8. Sellout Beneficiary
Certificate

SPC

9. Issue MBS

Investors

10. Proceeds for MBS

3. Issue a certificate of
conformance
6. Entrust loans

Inspection
institution

7. Beneficiary
Certificate

Trust
companies

(Note)the above illustration is a case where trust and SPC are used

3. Housing loan insurance business and housing information and consultation services
Housing loan insurance business
JHF supports private financial institutions ability to originate loans by underwriting housing loan insurance
If borrowers are in default, JHF provides insurance claims for uncollected money to the private financial
institutions based on the compensation rate

Loan &
repayment

Borrowers

Loan

Credit
enhancement

Financial
institutions
(Insured)

Insurance

JHF
(Insurer)

Housing information and consultation services

JHF provides a wide range of housing-related information, including Flat 35 (long-term fixed-rate housing loan
which is to be purchased by JHF), simulation of funding and repayment plans and technical information
JHF provides basic knowledge of Flat 35 and of other housing loans through events and seminars
JHF provides full advisory service regarding funding and repayment plans

10

4. Loan origination business and management of outstanding loans

Loan origination business

Rental houses

JHF provides loans to develop rental houses for the elderly and families with small children, which are
important for public welfare but not feasible by the private sector
Funding source: Straight bonds

Urban rehabilitation
etc

JHF provides loans to construct facilities to promote rational and sound use of land in urban areas
JHF provides loans to the elderly to renovate their homes to make them barrier-free: these loans include
special repayment terms, such as bullet repayment at death
JHF provides loans to people who prepare for disasters by relocating or renovating their homes
Funding source: Savings bonds for acquiring houses and sites, Straight bonds

Disaster mitigation

To support the early restoration of houses damaged by disaster, JHF provides low-interest-rate loans
promptly after the disaster
Funding source: Fiscal investment & loan program (FILP loan)

Property
accumulation
savings schemetied houses

JHF provides housing loans to workers who have saved money through property accumulation savings,
which was set up to encourage workers to build their assets
Funding source: Property accumulation savings scheme-tied housing bonds

Management of outstanding loans

JHF manages the outstanding loans succeeded from GHLC until the loans are repaid
These are managed in a special account separate from other JHFs accounts

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5. Funding sources for each business

The funds for securitization business are raised primarily by the issuance of Monthly MBSs
The funds for the over-collateralized portion for MBS is raised primarily by the issuance of straight bonds
Among loan businesses, the rental housing loans are primarily funded by the issuance of straight bonds
By issuing S-series MBSs, a portion of outstanding loans is securitized

Monthly MBS

Securitization business

Loan
origination
business

Straight Bonds (SB)

Rental houses

Savings bonds for acquiring

houses and home sites

Urban rehabilitation etc

Government loan (FILP loan)

Property accumulation savings
scheme-tied housing bonds

Disaster mitigation
Property accumulation savings
scheme-tied houses

Management of outstanding loans

S-series MBS

Note: the above illustration indicates main fund-raising methods for each business

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6. Monthly MBS ~Funding source of securitization business (Agency conduit model)

Basic features of Monthly MBS

1. Asset-backed Zaito Agency bonds

2. Pooling of standardized and qualified loans

3. Over-collateralization

4. Monthly pass-through repayment

5. Partial cancellation of trust agreement with default loan and redemption of MBS

13

6. Monthly MBS ~Funding source of securitization business (Agency conduit model)

1. Asset-backed Zaito Agency bond - I
JHF purchases housing loans Flat 35, which were provided by private financial institutions (purchased loans).
JHF entrusted the purchased loans together with its originated loans (direct loans). Most of the loans to be
entrusted are purchased loans. JHF enters into trust agreements and establishes a third-party benefit trust
whose beneficiaries are holders of the bonds (MBSs). JHF issues bonds backed by trust asset.
If any default (such as delinquency for four months) occurs on trust assets, JHF MBSs are redeemed in the
amount equal to principal of the default loan. Delinquency up to three months are not treated as defaults and
JHF pays principal and interest as scheduled
The certainty of payment of principal and interest under normal circumstances depends on the creditworthiness
of JHF
The entrusted housing loan is not treated as off-balance item.
Under normal circumstances

Flat 35
2. Sellout housing
loan

1. Provide housing
loan

Private
financial
institutions

Borrowers

6. Pay principal &

interest

5. Payment for
purchased loan

JHF

Trust banks
4. Entrust loans

3. Loans to be
securitized

* Third party
benefit trust

Trust asset

6. Hand over money

collected

JHF MBS
7. Repayment of
interest & principal

5. Issue MBS

Investors

* Third party benefit trust: Trust whose beneficiary is not a

consigner but a third party

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JHF issues bonds based on the

loan pledged as collateral (5.)

6. Monthly MBS ~Funding source of securitization business (Agency conduit model)

1. Asset-backed Zaito Agency bond - II
If any of the following Events Causing a Beneficiary Interest occurs, the transaction becomes true sale
structure whereby the payment of principal and interest depends on the creditworthiness of the trust asset
To investors, dividends are paid to their Beneficiary Interest at the same rate as the related JHF MBS, and
principal is repaid up to the investment amount only from the trust asset; this method of repayment is called
pass-through turbo redemption
After an Event Causing a Beneficiary Interest
3. Trustee directly collects
loans

Borrowers

2. Retirement
of bonds

JHF MBS

Beneficiary
(investors)

Dissolution of JHF without an entity appointed to succeed the

payment obligations of the notes

Dissolution of JHF where the entity appointed to succeed the

payment obligation is a kabushiki gaisha (joint stock corporation), or
laws are amended so that the appointed entity is allowed to file for
corporate reorganization or other similar bankruptcy proceedings

The obligor of the notes is privatized to become a corporation or

laws are amended so that the obligor is allowed to file for corporate
reorganization or other similar bankruptcy proceedings

Payment default on the part of JHF, taking into consideration a

grace period of seven days, on this note or any other bond that JHF
issues or that is transferred to JHF

Trust banks

JHF
1. Occurrence
of Event
Causing a
Beneficiary
interest

[Events Causing a Beneficiary Interest]

Trust asset

Beneficiary
interest
4. Dividend based on beneficiary
right (Bond holders definitely
acquire beneficiary right)

* Investment amountThe amount calculated to create a base for expected dividend amount for the beneficiary interest and to set an upper limit of the repayment of principal for
the beneficiary right subsequent to the retirement of the related JHF MBS. The initial investment amount shall be the outstanding amount of the related JHF
MBS held by each beneficiary at the time immediately before the related JHF MBS is retired on the day of retirement of the related JHF MBS

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6. Monthly MBS ~Funding source of securitization business (Agency conduit model)

2. Pooling the standardized and qualified loans
Avoid individuality among purchased loans by setting certain purchase standards
No regional concentration risk, because JHF supports homeownership across Japan
Avoid uncertainty in housing loan interest rate, as all loans are fixed-rate

[Eligibility criteria]
Age

Less than 70 at the time of loan application

Repayment capacity

Debt to income (DTI) ratio limits

If annual income is less than 4 mm yen, <=30%
If annual income is 4 mm yen or more, <=35%
* Income is investigated based on documents issued by a public institution

Eligible residence

Construction cost or purchase price <=100 mm yen

Loan amount

<=80 mm yen, <=90% of construction cost/purchase price)

Loan period

At least 15 yrs and not greater than 35 yrs

Type of interests

Fixed interest rates for entire loan term

Collateral

First lien (with priority over JHF) on land and building

Other terms and conditions

Borrowers must enter into group credit life insurance

Cover residences with fire insurance

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6. Monthly MBS ~Funding source of securitization business (Agency conduit model)

3. Over-collateralization
Sufficient collateral with over-collateralization is pledged to mitigate an Event Causing a Beneficiary Interest
By pledging sufficient collateral, JHF intends to obtain and maintain AAA ratings from S&P and R&I (note that a
bond rating from Moodys is not obtained)
The funding for over-collateralization is raised from the issuance of straight bonds, not MBS

Over-collateralization
Over-collateralization and
and fundraising
fundraising (Basic
(Basic concept)
concept)
[JHF MBS] Create an over-collateralization by using a portion of purchased loan
Covered by the funds
raised from the
issuance of Straight
bonds

Over-collateralization
Trust
pool

Purchased loan

Direct loan

Mortgage-backed
securities (MBS)

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6. Monthly MBS ~Funding source of securitization business (Agency conduit model)

4. Monthly pass-through repayment - I

The principal redemption amount paid by loan borrower is applied to repayment of principal of JHF
MBS
<Basic concept of redemption of JHF MBS>
0%PSJ
80

5%PSJ

Yen in ten thousands

80
Weighted average
life (WAL)
18.9 yrs

70
60

Interest amount

70

Weighted average
life (WAL)
12.6 yrs

60

50

50

40

40

30

Yen in ten thousands

30

Interest amount

20

20
Redemption
amount

10

Redemption
amount

10

0
0

10

15

20

25

30

35

10

15

20

25

years

30

35
years

(Note) The redemption scheme above is the one for the face amount of 100 mm yen of JHF #1.
In addition, the above charts were created based on the Prepayment Standard Japan (PSJ) model provided by Japan Securities Dealers
Association.
Also, the calculation is based on the assumption that no clean-up call(*) is exercised, even if the expected outstanding trust pool balance is
10% or less. Therefore, please note that the above redemption amount, interest amount and weighted average life is different from the
actual ones.
* If the outstanding balance of JHF MBS is 10% or less of the total initial issue amount, JHF may accelerate the redemption of all of the
outstanding balances

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6. Monthly MBS ~Funding source of securitization business (Agency conduit model)

4. Monthly pass-through repayment - II
What is the Prepayment Standard Japan (PSJ) model ?
5%PSJ

The Prepayment Standard Japan (PSJ) model indicates

the speed of prepayment which may occur in the housing
loan pool as a function of loan age

(CPR)

For JHF MBS, PSJ model is adopted as a convenient

prepayment vector and usable for many investors.
Meanwhile, JHF MBS is the only MBS in Japan for which
Japan Securities Dealers Association calculates and
provides statistics of PSJ forecasts of underwriters

Terminal CPR (5%)

PSJ vector starts at 0% CPR at 0 months, and ramps up to

a specified terminal CPR in 60 months (5yrs)
Ramp-up period
(60 months)

(Weighted average loan

age (WALA))

PSJ model vs PSA model

Initial CPR
Ramp-up period
Terminal CPR

PSJ vector (Japan)

0%
60 months

PSA vector (US)

0%
30 months

A terminal CPR of X% corresponds to X%

PSJ

A terminal CPR of 6% corresponds to 100%

PSA, and scales accordingly

19

6. Monthly MBS ~Funding source of securitization business (Agency conduit model)

5. Partial cancellation of trust agreement with default loan and redemption of MBS
Prepayment of MBS in the amount equal to principal of the default loan
In the monthly MBSs which are to be issued in and after April 2007, if any default housing loan occurs in the trust
pool, the principal amount of such default loan is prepaid in related Monthly MBSs and then dissolved from the
trust pool

Events of prepayment
Main causes are as follows:

Delinquency of principal and interest for four months

Debt assumption by a third party
Succession following the death of debtor
If repayment of all amount is requested by JHF
Occurrence of termination events, such as start of bankruptcy proceeding as to the loan agreement

(Note) Event of prepayment includes but is not limited to the above causes.

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7. Straight bonds ~Funding source of loan origination business

Straight Bonds
Use of proceeds:

To raise funds for over-collateralization of MBS and loan origination business of

rental houses

Period:

5, 10 and 20 yrs

Bond Rating:

S&P: AA, R&I: AAA

Savings bonds for acquiring houses and house site (Private Placement)
Use of proceeds:

To raise funds for loan origination business of rental houses and urban rehabilitation etc

Period:

10 yrs

Solicitation:

Once a year

Target subscribers:

Condominium associations which meet certain standards

Property accumulation savings scheme-tied housing bonds (Private Placement)

Use of proceeds:

To raise funds for loan origination business of property accumulation savings

scheme-tied houses

Period:

5 yrs

Issue timing:

Jun, Sep, Dec, and Mar

Underwriters:

Financial institutions dealing property accumulation savings

(Note) All bonds are backed by general lien of JHFs asset

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8. S-series MBS ~ Management of outstanding loan

Use of proceeds:

Implement prepayment of high-interest-rate government loan to improve financial position

Collateral:

Outstanding loans succeeded from GHLC and seasoned for a certain period after origination

Credit enhancement: Over-collateralization, same as Monthly MBS

Bond rating:

AAA from S&P and R&I

Characteristics of S-series MBS *Overall scheme is same as the one of Monthly MBS

WAL (Weighted Average Life)

Cancellation method of default housing loan

Monthly MBS

S-type MBS

910 yrs*1

78 yrs*1

Prepayment*2

Replacement*3

*1 Average of the figures provided by potential underwriters

*2 Replacement method is adopted for monthly MBS of GHLC (GHLC MBS #1-53)
*3 If default occurs, replace default housing loan with sound one

Track record of prepayment of the government loans

FY2005

FY2006

FY2007

Amount of prepayment of the

government loans

Y 1.6 trillion (A)

($13.9 billions)

Y 2.0 trillion (A)

($17.4 billions)

Y 2.7 trillion (E)

($23.5 billions)

Issue amount of S-series MBS

Y 1.1 trillion (A)

($9.6 billions)

Y 1.2 trillion (A)

($10.4 billions)

Y 1.2 trillion (E)

($10.4 billions)

* under the assumption of $1 = Y115

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9. Medium-term objectives / Medium-term plan

JHF aims to turn profitable on a single fiscal-year basis in the first period of the medium-term objectives period and
to eliminate losses carried forward during the second period

JHF was founded

2007.4
Securitization business Business Reform Plan
was formulated
was started
2005.7
2003.10

FY

03

04

05

06

Expected revenue and

expenditure for securitization
business

Improvement of financial
situation in the outstanding
loan management account

Streamlining
business operation

Period for the 1st mid-term objectives

(2007.4 - 2012.3)

07

08

09

10

11

Realize a turnaround in a single fiscal

year during the 1st period

Prepay government loans without penalty

by securitizing the outstanding loan.
Abolish subsidies during the 1st period

Reduce regular staff

by 4%+ and SG&A by
6%+ in advance
(compared with the
data for 2004)

Reduce regular staff

(reduce 10%+)
Reduce SG&A
(reduce 15%+)

23

Period for the 2nd mid-term objectives

(2012.4 - 2017.3)

12

13

14

15

16

Eliminate loss forwarded during the 2nd

period