Introduction of Korea Housing Finance Corporation April 5, 2012 Korea Housing Finance Corporation

Contents Corporate Profile Korea Housing Finance Market 4 Line of Businesses  Supply of Long-term FRMs (Bogeumjari Loan)  Mortgage Securitization (MBS Issuance)  Housing Finance Credit Guarantee  Reverse Mortgage Guarantee (JooTaekYeonKeum) 2 2

3 Corporate Profile Public Secondary Mortgage Market Enterprise Established on Mar. 1, 2004 Mission: To improve the welfare of the public and contribute to the development of the national economy by promoting the stable supply of long-term housing finance Capital Base & Government’s Credit Support Paid-in Capital: KRW 1,077 billion (Dec. 31, 2011) Contributors of the Capital  Government(71%), BOK(29%) Government provides the strongest form of credit support  Losses, in excess of reserves, to be covered by government (HF Act)

Corporate Governance Board of Directors  Responsible for decision-making on the execution of critical business  Specialized Sub-Committee: Strategy / Operation / Financial President & 1 Vice President 4 Executive Directors & 7 Outside Executive Directors Housing Finance Steering Committee  Responsible for basic managerial and operational principles HF President (Chairman of the Committee) 2 Government officers 3 Professionals 4 Executive Administrative Council  Responsible for decision-making on general managing and operation President 1 Auditor 1 Vice President & 4 Executive Directors 4

Characteristics of Korea Mortgage Loan 5 Mortgage loans outstanding held by Financial Institutions & Government Agencies * KRW trillion (as of Sep. 2011) *National Housing Fund(NHF) & Korea Housing Finance Corporation(HF) Dominated by Banks covering 68% Mainly funded by Deposits and focusing on ARM origination HF holds mortgage loans both in the trust as underlying assets for MBS and in its own book for mortgage portfolio. Providing funding source to financial institutions for FRM origination 5 Source : FSS, HF

Characteristics of Korea Mortgage Loan (cont’d) 6 Source : FSS Bank’s Mortgage Loans Outstanding ( Payment type ) Bank’s Mortgage Loans Outstanding ( Interest Rate type ) Installment payment share has increased sharply. Bullet payment share still high. (40%, as of June. 2011) ARM share covering 79.5%, susceptible to interest rate change 6 (June. 2011) Source : FSS

Banks, aggressive in Expanding Mortgage Business 7 Source : BOK Banks’ mortgage business has shown steady increase reaching KRW 306 trillion(Dec. 2011). Started to expand mortgage business from 2001 Mortgages recognized as an asset class for increasing size without sacrificing credit quality during the period of persistent rise of house price Mortgages to household loans ratio reached 67.2% (Dec. 2011) 7

8 Major Regulatory Tools LTV DTI Firstly Introduced in Sep Now applicable to all mortgage origination Max. LTV ratio differently set by considering  Loan Maturity, House Price, House Type  Location (Speculation Zone)  Lender (Bank vs. Non-banking) Introduced in 2004 as a requirement for allowing Max. 70% of LTV ratio to FRMs  Expanded its application to mortgages originated in Speculation Zone in 2006 Application of DTI, decided by Location & House Type Max. DTI ratio differently set by considering  House Price, Loan Amount, Property Size  Lender (Bank vs. Non-banking)

Major Line of Business Supply of Long-term Fixed-rate Mortgages Mortgage Securitization (MBS Issuance) Reverse Mortgage Guarantee Housing Finance Credit Guarantee 9 9

Monthly FRM Origination by Participating Lenders Supply of Long-term FRMs (Bogeumjari Loan) (KRW in billions) 10 HF, Funding Source for Fixed-rate Mortgages Currently 20 lenders originate FRMs under HF Securitization Commitment Program 421,709 low and moderate income families used Long-term FRMs. KRW 38 trillion (Mar ~ Dec. 2011)

11 Qualification  Not registered in KFB’s Bad Financial Transaction Information DB  CB grade is within 1 st to 9 th grade  Number of houses owned by the borrower ≤ 1  Income proof required Maturity  From 10 years to 30 years (30 years unavailable for Prime Rate Bogeumjari) Max. LTV Ratio  60~70%(Depending on DTI and House Type) - Apartment(70%), Other types(65%) Max. Loan Amount  KRW 500 million Max. DTI Ratio 1)  40%(44% if income tax deduction requirement is satisfied) Collateral  Residential properties(Apartment, Multiplex, Detached Houses and etc)  Max. Appraisal Value = KRW 900 million  Not eligible under Legal Process Purpose  Purchase, Refinancing *1) DTI = {(Monthly P&I Payment Amt + Estimated * Interest Payment Amt of Other Debts) / (Monthly Income)} * Estimated Interest Rate = Weighted Avg. Loan Interest Rate published by the Bank of Korea HF Underwriting Criteria for Long-term FRMs

Mortgage Securitization (MBS Issuance) Sales of Mortgages Trust Issuance of MBS Borrowers Monthly Repayment of P&I Servicing Fee Guarantee Fee Trustee Fee Lenders (Seller/Servicer) Trust (Trustee: HF) Investors FSC MBS P&I Repayment Mortgages Registration of Securitization Plan & Transfer/Trust Guarantee on MBS P&I payment HF MBS Issuance Structure 12 HF 12

13 Source : HF (KRW in billions) Monthly HF MBS Issuance & Mortgage Portfolio Balance HF completed 93 MBS deals. (Dec. 2011) Underlying assets are mostly FRMs originated by financial institutions. Mortgage-MBS Swap transactions backed by ARMs implemented Cross-border CB deal completed in Jul Total MBS Issuance Amount $40.5 billion (Dec. 2011) * SLBS $7.2 billion not included Mortgage portfolio increased sharply since 4Q 2008 $13.4 billion (Dec. 2011) Mortgage Securitization (MBS Issuance) (cont'd)

14 Cross-border HF Covered Bond Transaction Structure  HF issues Covered Bond.  CB holders have priority claims on the Mortgages in Cover Pool.  HF enters into Swap Arrangement with Swap Provider for hedging interest & FX risks.  Trustee acts as a paying agent of CB.  Cover Pool must pass Asset Coverage Test (ACT) and Portfolio Yield Test. Swap Provider Administrator Bond Trustee CB Holders (Investors) USD Proceeds(Closing) KRW Proceeds(Closing) KRW (P&I) Payments USD (P&I) Payments Covered Bond USD Proceeds (Closing) Cover Pool Test HF Cover Pool

15 Housing Finance Credit Guarantee Guarantee Service to obtain the Chonsei Loan from Bank Guarantee for Chonsei loans Guarantee service to obtain loan to pay installments for a newly built apartment Guarantee for installments Guarantee service if the house is not sufficient as collateral for buying house Guarantee for home purchase Guarantee service for loans from banks to purchase land and build homes Construction loan guarantee Individual House Builders

Housing Finance Credit Guarantee (cont’d) Supply of Housing Finance Credit Guarantee HF provides guarantees through Housing Finance Credit Guarantee Fund for individual households or housing builders that are short of collaterals or have relatively lower credit. $64.6 billion of guarantee provided since (As of Dec. 2011) Individual households : $59.8 billion (used by 2.7 million households) Housing builders : $4.7 billion 16 (KRW in billions) 16 Financial Institution ( Bank ) Borrower (Households, Housing Builders ) HF Provide Loan Guarantee Trust the Contract of Guarantee Housing Finance Credit Guarantee Structure

17 Housing Finance Credit Guarantee (cont’d) Guarantee on chonsei loans covering about 52% of total guarantee for individual households in Guarantee on construction covers about 83% of total guarantee for housing bui lders For Individual Households (2011)For Housing Builders (2011) (KRW in billions)

18 Reverse Mortgage Guarantee (JooTaekYoenKeum) JooTaekYeonKeum (JTYK) is a reverse mortgage guarantee program launched by HF in July, JTYK provides financial and housing security to seniors who own their residence but lack of stable income. 7,286 seniors used JTYK totaling $10.3 billion since July ( Dec. 2011) Financial Institutions JTYK Guarantee Reverse Mortgage (Monthly Payment) Borrowers (Seniors) JTYK Guarantee Originations (KRW in billions) JTYK Structure HF

19 Reverse Mortgage Guarantee (JooTaekYoenKeum) (cont’d) Homeowner of 60-year-old or older Appraised value under 0.9 Bil. KRW Homeowner of 60-year-old or older Appraised value under 0.9 Bil. KRW Borrower’s Eligibility PaymentType Payment Type Term Tenure : equal monthly payment Modified Tenure : equal monthly payment with credit line Tenure : equal monthly payment Modified Tenure : equal monthly payment with credit line As long as borrowers live Until the property is sold As long as borrowers live Until the property is sold Repayment Repayment obligation cannot exceed the property value Eligibility and Payment Type