In: Root » » Loans and mortgages
Restructuring the public housing loan corporation: causes and possible consequences In the following, I examine the reasons for restructuring the Public Housing Loan Corporation and sketch some ofthe possible consequences thereof: 1 Living standards in terms of housing have improved. Recently the number ofdwellings has exceeded the number ofhouseholds and the average floor space per dwelling is almost equal to that in European countries. In this sense, the GHLC can enjoy a sense ofmission accomplished. 2 The ratio of GHLClending to support economic policy has increased. The share and amount ofGHLC lending rapidly increased in the 1990s,4 as the lending conditions ofGHLC were relaxed and housing starts funded by GHLC have increased in connection with the government’s reflation policy and consequent efforts to promote housing construction. However, this development runs counter to government concurrent efforts to promote privatization, deregulation and market-oriented reforms and is also a fiscal burden on the government. 3 Increase in advanced redemption of GHLCloans . Nowthat private housing loan rates are available at extremely low interest rates, consumers are refinancing their GHLC loans that were contracted at higher interest rates. As a result ofthese early redemptions ofhigher cost loans, and the low prevailing rates ofinterest on housing loans, GHLC’s financial situation has deteriorated, requiring a replenishment off unds that is burdening an already strained government fiscal situation. To get a sense ofhow grave the situation is, Japan’s national debt stands at 163% ofGDP as of2005 compared to 66% in the USA. The GHLC has tried to diversify its fund raising and has also tried to issue GHLC mortgage-backed securities, but it cannot hedge against the risk of advanced redemption. 4 Aggressive lending policies for housing by private financial institutions. Previously a significant proportion ofbanks’ profits depended on lending to companies for their capital spending programmes, but since the late 1980s firms have increasingly resorted to direct financing by issuing stocks and bonds. This trend towards direct financing is especially true with the least risky, most creditworthy large firms. This means that banks have been left with a shrinking and more risky base ofcorporate customers, generating pressures to diversify lending. In addition, due to the prolonged recession in Japan, firms’ demand for funds has been decreasing, putting additional pressure on bank profits during the 1990s when many were technically insolvent and in dire need ofhigher rates ofreturn. Due to these conditions, private financial institutions have focused on tapping the retail sector (business for individual customers) where there is a relatively small risk and stable returns. Banks are well positioned to seize a greater share ofthe housing loan market due to the development ofrisk hedge methods such as swaps, well developed ALM (asset and liability management) methods such as issuing bank bonds, the low risk weight ofBIS (=Bank ofInternational Settlements) regulations (i.e., Basel Capital Accord) and access to government funds at near zero rates of interest. Currently the swap market for more than 10 years remains underdeveloped and thus fixed rate housing loans for more than 10 years are limited. However, banks are beginning to offer longer-term fixed-rate interest loans and thus are set to provide products similar to those offered by GHLC (30-year fixed rates loans available at least since 2002). 5 Fiscal Loan and Investment Programme Reform. The current trend towards privatization and the need for fiscal austerity will have a significant impact on the Fiscal Loan and Investment Programme (Zaito). This programme has functioned as Japan’s so-called ‘second budget’, involving government funding for a range of projects including subsidies for housing loans.
|
|||||||||||||
Disclaimer
1) E-articles is not responsible for the information contained by this article as well for any and all copyright infringements by authors and writers. E-articles is a free information resource. If you suspect this article for any copyright infringement, please read the terms of service and contact us or use the "Report this article" button on this page to investigate the problem.
2) E-articles is not responsible for inaccuracies, falsehoods, or any other types of misinformation this article may contain and will not be liable for any loss or damage suffered by a user through the user's reliance on the information gained here. |
|||||||||||||
