Bangkok--14 May--Standard & Poor's Standard & Poor's Ratings Services today assigned its 'AA' senior unsecured local currency long-term debt rating to Japan Housing Finance Agency's (JHF; AA/Stable/--) collateralized bonds issue. The 'AA' rating was assigned to JHF's ?3.9 billion, 2.38%, 15th nonguaranteed bonds due March 17, 2028. JHF is the only government-supported entity (GSE) in Japan that specializes in supporting the activities of the housing-loan market, and was established on April 1, 2007, to succeed the operations of Government Housing Loan Corp. (GHLC), which was abolished on March 31, 2007. GHLC had already shifted its business focus from direct lending to securitization and its traditional mortgage lending operations were abolished in March 2007, except for management and servicing of existing loans. The direct loans that JHF will extend will be limited to disaster-related emergency loans and housing loans designed to revitalize city housing, both of which are difficult to service for private-sector institutions. "JHF's public policy role is more clearly defined than that of GHLC's, in terms of supporting the housing loan business of private-sector institutions, and contributing to the development of the securitization market," said Standard & Poor's credit analyst Takahira Ogawa. "In addition, the relationship between JHF and private-sector institutions will be more cooperative than competitive." JHF is expected to receive ongoing government support under the Japan Housing Finance Agency Law (agency law). Annual government subsidies to GHLC to cover interest rate losses from housing loans have been abolished, since regular new housing loan operations have been discontinued. As part of the GHLC-JHF transition process, the government will make up for losses caused by the prepayment of existing housing loans and the deterioration of revenues at Housing Loan Guarantee Corp. by allowing JHF to prepay loans to the government without penalty, thereby reducing the interest payment amount. At the same time, the government is expected to provide a similar level of support to JHF as it did to GHCL with regard to guarantees, additional capital injections, and grants. "In the medium to long term, JHF will need to cover interest costs and other expenses by generating revenues from its securitization-supporting operations. However, concerns remain over the future profitability of JHF, since GHLC's securitization operations were generating marginal losses," said Mr. Ogawa. Another concern is the potential risk from the rise of competitors, though this possibility is currently low. One media report said the government might test the market in securitization of mortgages, which is JHF's main business. The total amount of securitization originated by JHF is rapidly expanding, reaching ?5.8 trillion as of Dec. 31, 2006. Yet this amount is still small, compared with the outstanding balance of loans held by JHF, which totals about ?45.7 trillion. If a competitor emerges in the near future, JHF may not be able to establish a dominant position in the securitization market. The stable outlook on the rating on JHF mirrors the outlook on the long-term sovereign ratings on Japan (AA/Stable/A-1+), reflecting JHF's public-policy role and the government's support to the organization. The rating on JHF will continue to be affected by the rating and outlook on the Japanese government. Should there be any changes to JHF's position within the public-policy framework, or in the degree of government support extended, the rating on JHF may be revised. A Japanese-language version of this media release is available on Standard & Poor's Research Online at www.researchonline.jp, or via CreditWire Japan on Bloomberg Professional at SPCJ . Complete ratings information is available to subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com; under Credit Ratings in the left navigation bar, select Find a Rating, then Credit Ratings Search. Media Contact: David Wargin, New York (1) 212-438-1579, [email protected] Analyst Contacts: Takahira Ogawa, Singapore (65) 6239-6342 Kumiko Kakimoto, Tokyo (81) 3-4550-8705 Standard & Poor's, a division of The McGraw-Hill Companies (NYSE:MHP), is the world's foremost provider of financial market intelligence, including independent credit ratings, indices, risk evaluation, investment research and data. With approximately 8,500 employees, including wholly owned affiliates, located in 23 countries and markets, Standard & Poor's is an essential part of the world's financial infrastructure and has played a leading role for more than 140 years in providing investors with the independent benchmarks they need to feel more confident about their investment and financial decisions. For more information, visit http://www.standardandpoors.com. Key Contacts: Americas Media Relations: (1) 212-438-6667 media_ [email protected] Americas Customer Service: (1) 212-438-7280 [email protected]