SEOUL, REPUBLIC OF KOREA, October 31, 2000
---The International Finance Corporation will invest in Korea's secondary mortgage market with support for Korea Mortgage Corporation (KoMoCo), the country's first specialized secondary mortgage company. The investment will stimulate more affordable long-term loans to homebuyers and strengthen Korea's financial markets.
KoMoCo will acquire, invest in, and securitize high-quality residential mortgage loans, making market mechanisms more efficient and promoting economic recovery in the aftermath of the recent recession. It will institute standards for credit and property underwriting and standardize documentation and mortgage products. These activities are expected to have the same stimulating effect on the Korean mortgage market that Fannie Mae and Freddie Mac have in the U.S. market.
KoMoCo will also create new mortgage backed securities—a long-term investment instrument that will develop local capital markets and for which there is anticipated demand from banks, insurance companies, and pension funds.
KoMoCo was established as a financial institution in September 1999 with IFC assistance. Its domestic sponsors are the Korean Ministry of Construction and Transportation, Kookmin Bank, Housing and Commercial Bank, Korea Exchange Bank, and Samsung Life Insurance.
Merrill Lynch will provide a technical assistance package and, through its affiliate, Merrill Lynch Global Emerging Markets Partners, L.P. (MLGEMP), will take a 10 percent equity stake in KoMoCo. MLGEMP is a private equity fund managed by Merrill Lynch Global Partners, Inc. and is designed to make significant minority investments in businesses located in emerging market countries.
IFC is committing up to US$15 million equity for a stake of up to 15 percent in KoMoCo and will invest another $85 million in credit enhancements to support up to $2 billion of mortgage-backed and corporate debt securities.
In addition to investing in KoMoCo, IFC also arranged technical assistance supported by the government of Japan, to develop best practice in the legal, regulatory, and supervisory framework necessary to grow Korea's under-developed mortgage market. IFC helped to draft the Mortgage-Backed Securitization Company Act in December 1999, which forms the cornerstone of the secondary mortgage market in Korea.
Mr. Javed Hamid, IFC Director for East Asia and the Pacific, said the project will promote more competition, encourage growth of a primary and secondary mortgage as well as bond markets; and help to develop a modern, transparent, and efficient housing finance sector in Korea. He added that the establishment of KoMoCo grew from a collaborative effort of IFC, the Korean government, and the domestic and international private sector.
The mission of IFC, part of the World Bank Group, is to promote private sector investment in developing countries, which will reduce poverty and improve people's lives. IFC finances private sector investments in the developing world, mobilizes capital in the international financial markets, and provides technical assistance and advice to governments and businesses.
