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
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.