Japan's housing agency seeks strategy

By Kathleen Chu  |   2008-12-13  |     NEWSPAPER EDITION

THE Japan Housing Finance Agency, with US$429 billion in assets, said it needs a new business model after copying the failed practices of Fannie Mae and Freddie Mac.

The United States mortgage-finance companies, seized by the US government this year, had been successful until they departed from their original goals and started pursuing higher profits, said Seiichi Shimada, president of the agency, in an interview with Bloomberg Television aired yesterday.

"It is inevitable for a listed company to maximize profit in order to please its shareholders," said Shimada. "Our mission is to create a stable environment that makes long-term housing loans available for everybody. It would probably be difficult for us to achieve that as a listed company."

The Japanese government will decide the future of the housing agency, with options including privatization, by the end of 2009. The agency reported a loss of 171.7 billion yen (US$1.9 billion) for the year ended March 31, according to data on its Website. Shimada, who didn't outline a new business model, said the agency hadn't made investments in subprime loans, which triggered the meltdown of the US housing market.

The organization, formed in 1950 as the Government Housing Loan Corporation, buys housing loans from financial institutions and sells them as mortgage-backed securities to investors.

Until last year its primary role had been lending directly to homeowners.

Unlike Fannie and Freddie, it doesn't seek profit through buying residential mortgage-backed securities from other issuers, Shimada said.

Shimada said certain continued government involvement would be essential for Japan to run a successful housing-loan program.

"If we become a publicly listed company, a certain level of government guarantee would probably be necessary."