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JHF RMBS Performance Watch May 2023: Real Wages Key To Stress

JHF RMBS transactions
GHLC series 1 to 53 residential mortgage-secured pass-through notes
GHLC series S-1 to S-10 residential mortgage-secured pass-through notes
JHF series 1 to 189 residential mortgage-secured pass-through notes
JHF series S-1 to S-18 residential mortgage-secured pass-through notes
JHF series T-1 to T-9 residential mortgage-secured pass-through notes
Includes transactions for which JHF has exercised call options and fully redeemed notes. GHLC--Government Housing Loan Corp. JHF--Japan Housing Finance Agency.

Mild inflation in Japan will have a limited effect on underlying loans.   The overall Japan Housing Finance Agency (JHF) series pool's (see note 1) performance deteriorated temporarily after the first state of emergency in April 2020. Following that, we observed a recovery. Recently, consumer prices have been rising. Inflation without higher real wages could stress borrowers' repayment abilities and hurt mortgage loan performance. However, as of March 2023, we forecast annual inflation of 2.8% in 2023 and 1%-2% from 2024 to 2026. We expect this mild inflation to have a limited impact on borrowers' abilities to repay debt and the performance of mortgage loans.

Replacement and withdrawal ratios of loans underpinning the monthly notes are likely remain stable for the foreseeable future.  These ratios (see note 2) rose considerably to about 1.7% as of August 2020, mainly due to a temporary increase in delinquency rates and relaxation of loan conditions during the pandemic. The ratio is back to its pre-pandemic level of about 0.5% (see chart 3). As of March 2023, we assume that Japan's unemployment rate will remain low at between 2% and 3% until 2026. This low and stable unemployment rate will underpin the performance of mortgage loans. We anticipate limited volatility in replacement and withdrawal ratios despite a slight upward trend in delinquency rates.

Replacement and withdrawal ratios for series S and series T notes remain stable.   Underlying pools backing series S and series T notes have longer seasoning, and redemption of principal payments is further on for these notes than for the monthly notes. Replacement and withdrawal ratios remained stable during the pandemic, showing lower sensitivity to stress environments (see chart 6).

Delinquency rates return to pre-pandemic levels.   The one-month delinquency rate of loans backing the monthly notes rose temporarily to about 0.65% as of May 2020. After that, the rate declined to 0.3%-0.4% in 2021, below its pre-pandemic level. We believe the delinquency rate fell during the pandemic mainly because household spending was restrained, in addition to various government subsidies and support, and because some borrowers with lower creditworthiness were removed from underlying pools through replacements or withdrawals faster than usual. The one-month delinquency rate has lifted slightly since 2022 and returned to its pre-pandemic level of about 0.5% (see chart 11).

Prepayment rates will remain low amid rising interest rates.  Prepayment rates of loans underlying monthly notes issued in and after fiscal 2016 have been low, at 1%-3%. Interest rates applied to loans executed since the Bank of Japan began its negative interest rate policy are generally low. In our view, lower incentives to refinance in the face of rising interest rates have eroded prepayment rates. Meanwhile, prepayment rates of loans underlying series S and series T notes have recently been stable at 5%-6%. In our view, most outstanding obligors in the underlying pools have remained insensitive to movements in interest rates, producing stable prepayment rates even as market interest rates have fluctuated (see charts 17, 18, 20, and 21).

We expect regular monthly notes issued in and after fiscal 2016 to considerably affect the current pool's performance.  Loan receivables backing these regular monthly notes represent about 71% of the recent outstanding balance of the overall series pool.

JHF exercised call options on notes for which the outstanding balance had fallen to less than 10% of their initial issue amount.   It exercised options on the Government Housing Loan Corp. (GHLC) series 27, 32, 33, 36, 38, 39, 43, 44, 47, 48, 51, S-10, and JHF series 3, 4, 6, 8, S-1, S-2 notes in April 2023. The GHLC series 1 to 27, 29 to 33, 36, 38 to 39, 42 to 48, 50 to 51, S-1 to S-10 notes, and JHF series 1, 3 to 6, 8, S-1 and S-2, S-13 to S-18 notes have been fully redeemed.

Pool Composition By Fiscal Year Of Issuance Or Contractual Fiscal Year

Table 1 (a)

Composition of pools (regular monthly notes)
Fiscal year of issuance 2001* 2002 2003 2004 2005 2006 2007 2008
Series GHLC series 1 to 5 GHLC series 6 to 10 GHLC series 11 to 17 GHLC series 18 to 29 GHLC series 30 to 41 GHLC series 42 to 53 JHF series 1 to 12 JHF series 13 to 23
*Includes GHLC series 1 issued in March 2001.

Table 1 (b)

Composition of pools (regular monthly notes)
Fiscal year of issuance 2009 2010 2011 2012 2013 2014 2015 2016
Series JHF series 24 to 35 JHF series 36 to 47 JHF series 48 to 59 JHF series 60 to 71 JHF series 72 to 83 JHF series 84 to 95 JHF series 96 to 107 JHF series 108 to 119

Table 1 (c)

Composition of pools (regular monthly notes)
Fiscal year of issuance 2017 2018 2019 2020 2021 2022*
Series JHF series 120 to 131 JHF series 132 to 143 JHF series 144 to 155 JHF series 156 to 167 JHF series 168 to 179 JHF series 180 to 189
*Fiscal 2022 includes issuances from April 2022 through January 2023.

Table 2(a)

Composition of pools (series S and series T notes)
Contractual fiscal year 2000 2001 2002 2003 2004 2005 1996 1997
Series GHLC series S-1 to S-3 GHLC series S-4 to S-10 and JHF series S-1 to S-3 JHF series S-4 to S-7 JHF series S-8 to S-9 JHF series S-10 to S-11 JHF series S-12 JHF series S-13 to S-15

JHF series T-1 to T-2

JHF series S-16 to S-18

JHF series T-3 to T-4

Table 2(b)

Composition of pools (series S and series T notes)
Contractual fiscal year 1998 1999
Series JHF series T-5 to T-8 JHF series T-9

Outstanding Balance Of Receivables

Chart 1


Chart 2



Replacement and withdrawal ratios

Chart 3


Chart 4


Chart 5


Chart 6


Chart 7


Chart 8


Cumulative replacement and withdrawal ratios

Chart 9


Chart 10


Delinquency rates

Chart 11


Chart 12


Chart 13


Chart 14


Chart 15


Chart 16


Prepayment rates

Chart 17


Chart 18


Chart 19


Chart 20


Chart 21


Chart 22


Notes for charts 3 to 22
  • Figures for loan pools by fiscal year of issuance or contractual fiscal year are weighted averages of the outstanding balances.
  • Breakdown of loan pools by fiscal year of issuance or contractual fiscal year: Our 12-month moving average starts at the first month, which we define as the month after the one in which JHF issued its first series for that fiscal year.
  • The rightmost portions of trendlines in some charts with seasoning show volatility until a full 12 months of data are accumulated for each fiscal year.
  • Charts by year of issuance and contractual fiscal year exclude years for which all pools have been fully redeemed.


We detail performance trends in the underlying pools of loan receivables backing the notes that JHF issued up to the end of January 2023 (see note 3). We separately examine:

  • The performance of the overall series pool, which consists of all pools of loan receivables backing all regular monthly notes and is mainly made up of loans JHF purchased from private sector financial institutions;
  • The performance of the receivables pools backing each individual series of regular monthly notes, broken down by fiscal year of issuance (see note 4);
  • The performance of the overall series S and series T pools, which consist of all pools of loan receivables that back all series S and series T notes and were extended by JHF itself; and
  • The performance of the receivables pools backing each series S and series T note, broken down by the fiscal year in which the loan agreements were made (see note 5).

1. In this report, "JHF" refers to the former GHLC and JHF, and "JHF notes" refers to notes that either the former GHLC or JHF issued unless otherwise noted.

2. JHF has a replacement scheme for regular monthly notes it issued before March 2007 and for series S notes. For regular monthly notes issued in or after April 2007 and series T notes, JHF has a withdrawal scheme that applies an amount equivalent to the principal on loans close to default and other loans to payment of the JHF notes and withdraws such loans from the entrusted assets. JHF defines receivables close to default and other receivables as:

  • Receivables that are four months overdue,
  • Receivables that JHF deems defaulted,
  • Receivables with extraordinary amendments to terms and conditions,
  • Receivables subject to changes in obligor (contracting party) names, and
  • Other receivables.

The fiscal 2005 loan pool included multiple other receivables that JHF replaced shortly after the transactions closed. These receivables were ineligible for inclusion in the underlying pools of JHF's structured notes because mortgage rights on the condominiums were not established as required. We thus excluded all other receivables for the five months following entrustment from the fiscal 2005 pool. The fiscal 2016 loan pool includes the JHF series 108 monthly notes, for which an administrative error at a partner financial institution has led to multiple withdrawals. We thus excluded all "other receivables" for the one month following entrustment regarding the JHF series 108 monthly notes.

3. This report updates "JHF RMBS Performance Watch November 2022: Toward Normality," which we published Nov 30, 2022. We periodically publish surveillance reports on the structured notes that JHF, formerly GHLC, issued. In this report, we have added performance data for the collection period from September 2022 to January 2023. The performance data in this report includes that of fully redeemed notes.

4. We aggregated the loans underlying the series of regular monthly notes by fiscal year (ends March 31 of the following year) of issuance. As a result of the relatively short ages of the underlying loans at the time of their entrustment, aggregated data by fiscal year of issuance are almost identical to aggregated data by contractual fiscal year (the fiscal year in which the loan agreement was entered into). Given that only the GHLC series 1 notes were issued in fiscal 2000, we included these notes in our calculation of the performance of the fiscal 2001 pool.

5. For series S and series T notes, there was a significant period between extension of the underlying loans and JHF securitizing them. We therefore aggregated the loans by contractual fiscal year.

Appendix: Calculation Of Indices

Replacement or withdrawal ratio (annualized)

Receivables replacement or withdrawal ratio for a term "t" = amount of receivables subject to replacement or withdrawal for term "t" (principal)/receivables outstanding at beginning of term "t" (principal) x 100 x 12

Cumulative replacement or withdrawal ratio

Cumulative replacement or withdrawal ratio for term "t" = cumulative amount of receivables subject to replacement or withdrawal from note issuance to end of term "t" (principal)/initial receivables outstanding (principal) x 100

Delinquency rate

Delinquency rate for term "t" = amount of delinquent receivables for term "t" (principal)/receivables outstanding at beginning of term "t" (principal) x 100

Prepayment rate (annualized)

Prepayment rate for term "t" = amount of prepaid receivables for term "t" (principal)/receivables outstanding at beginning of term "t" (principal) x 100 x 12

Related Criteria

Related Research

This report does not constitute a rating action.

Primary Credit Analyst:Shota Tatewaki, Tokyo + 81 3 4550 8276;

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