First MBS issuance by KHFC < Regular issuance on a monthly basis- 4 trillion won for 2004, 70 trillion won by 2008> On June 15th, KHFC issued KHFC MBS 2004-1 using mortgages which had been originated as underlying assets. A ceremony for the MBS issuance is planned at the grand ballroom of the Hilton Hotel with institutional investors and officials from related agencies in attendance. The total issuance is 552 billion won, using mortgages originated by Hana Bank, Korea First Bank, Korea Exchange Bank, and Samsung Life Insurance as underlying assets. MBS 2004-1 has nine senior tranches with maturities ranging from one to 20 years and one junior tranche. In preparation for possible prepayment, a call option is attached to the tranches with maturities of five years or more. - Call is exercisable three months after issuance for the tranches with maturities of five years. - Call is exercisable three years after issuance for the tranches with maturities of 7.5 years or more. The weighted average coupon rate is 5% (spread of 53 bp against 5 year KTB), coupon rates for tranches with maturities of three, five, 10, and 20 years are 4.33%, 4.67%, 5.04%, and 5.26%, respectively. The coupon rate for MBS tranches with maturities of 10 years and more is roughly equivalent to that of US Treasury Bonds (30-year US Treasury Bond: 5.47%, based on the closing quote of May 10th). Nineteen asset management institutions including commercial banks and life insurance companies rushed to buy MBS, showing strong demand for long term bonds - commercial banks: 220 billion won (40%), insurance companies: 200 billion won (37%) - pension fund: 100 billion won (18%), others: 30 billion won (5%) The issuance is considered a success in the effort to activate the financial and capital markets through issuance of MBS. The coupon rate for MBS is close to that of KTB - By minimizing funding costs for housing finance, it helps KHFC promote MBS issuance. The issuance set the stage for providing long-term bonds with maturities of 10 years or more. KHFC is expected to issue MBS on a monthly basis; 4 trillion won for 2004, 70 trillion won by 2008. By allocating more than 40% of the issuance to tranches with maturities of 10 years or more, it is expected to help develop the long-term bond markets in Korea.