The Introduction of KHFC SLBS Securitization of GovernmentGuaranteed

The Introduction of KHFC SLBS - Securitization of Government-Guaranteed Student Loan - Nov. 2005 Korea Housing Finance Corporation

Table of Contents 1 q Government-Guaranteed Student Loan 2 q Securitization Commitment Program 5 q Student Loan Securitization (SLBS) q Summary Information on KHFC 6 10

Government-Guaranteed Student Loan 2 q Establishment of Specialized Fund for Credit Enhancement § Korean Government established「Student Loan Credit Guarantee Fund」 Ø July 18, 2005 Ø To enhance the credit of student loans Ø Provides 90% Partial Loss Coverage § Ministry of Education & Human Resources Development directs the Fund § KHFC appointed as the Manager of the Fund Ø Borrowers apply for the guarantee through 15 designated Banks § Provided 470 billion won of guarantee in the 2 nd half of 2005 Ø From 2006, the Fund will provide 1. 5 trillion won of guarantee annually

Government-Guaranteed Student Loan 3 q Development of Long-term Student Loan Product Maturity Interest Rate Repayment Terms Prepayment Penalty § Max. 20 years § Max. 10 years of Grace Period determined by borrower’s academic year(grade), sex or the completion of military services § Max. 10 years of Repayment Period § Fixed Rate Online Application : 6. 95% p. a. Application at Banks’ Windows : 7. 0% p. a. Some Borrowers, in lower income bracket, entitled to get 0% or 2% Subsidized Loans (Subsidization Period limited to Grace Period only) § Monthly P&I (or Principal only) level payment § Fully Amortizing (No Partial Amortization) § No Prepayment Penalty

Government-Guaranteed Student Loan 4 q Student Loan Securitization § KHFC issues Student Loan-Backed Securities(“SLBS”) backed by Student Loans purchased from 15 designated Banks Ø KHFC guarantees SLBS P&I payment § Student Loans are funded from the Bond Market § Banks will not hold Student Loans under their balance Sheets § Banks act as the Servicers once they sell Student Loans to KHFC Ø Borrower repay P&I through the Banks (Originator/Servicer) Ø Banks get Servicer Fee Income Ø Banks are free from Credit Risk

Securitization Commitment Program 5 q Summary Information § The program was developed to facilitate the origination and securitization of Government-Guaranteed Student Loans § Pre-commitment Ø KHFC gives pre-commitment to purchase student loans from Banks Ø Banks give pre-commitment to originate student loans and transfer them to KHFC § Banks will act as the Servicer of the student loans § KHFC funds the purchase of student loans by issuing SLBS q Current Status § 15 Banks started to originate student loans from Aug. 12, 2005 § The first Issuance of SLBS was closed in Oct. 25, 2005

Student Loan Securitization(SLBS) 6 q SLBS Issuance Structure FSC Registration of Securitization Plan, Transfer/Trust Sales of Student Loans Banks Trust KHFC (Seller/Servicer) Issuance of SLBS (Trustee: KHFC) Guarantee Fee Trustee Fee Student Loans Monthly Repayment of P&I Guarantee Borrowers SLBS P&I Repayment Servicing Fee Guarantee on SLBS P&I payment Student Loan Credit Guarantee Fund Guarantee Fee Investors

Student Loan Securitization(SLBS) 7 q Summary of SLBS Issuance Structure Underlying Assets § Government-Guaranteed Student Loans originated under KHFC’s securitization commitment program Amount § 517 billion KRW Issuer § Trust (Trustee: KHFC) Issuance Structure 1. KHFC provides 100% Guarantee on SLBS P&I payment 2. Multiple tranches with different Maturities 3. Sequentially Partially Callable on a quarterly basis 4. Quarterly P&I Repayment by the exercise of call option 5. Noncallable Short-Term tranches, supported by 5 yr Fast-pay tranche SLBS Terms Servicer § Fixed-rate SLBS (Quarterly coupon payment) § AAA Credit rating, Listed in KRX, Deposited in KSD, Public Offering § 15 Banks (Originators)

Student Loan Securitization(SLBS) 8 q KHFC SLBS 2005 -1 5 Senior Tranche Sub-Tranche 5) Tenor (yrs) Issuance Amt. (Bln KRW) Interest Tate 1) (Fixed rate) Call option 1 270 4. 56% - 2 700 4. 99% - 3 600 5. 11% - Class A 300 5. 53% Partial Call Option 2) Class B 1, 000 5. 53% Partial Call Option 3) 7 800 5. 64% 10 800 5. 78% 15 600 5. 86% 20 100 5. 89% Total 5, 170 21 0. 01 After 3 yrs Sequential 4) Partial Call Option After 4 yrs After 5 yrs After 6 yrs 5. 89% Note: 1) Coupon Period of 3 Months (Except Subordinated Tranche) 2) Partial (5%) Call Option Every 3 Months, 6 Months after Issue Date 3) Partial (5%) Call Option Every 3 Months, 1 Year after Issue Date and After Class A Tranche is Fully Repaid 4) Exercisable after Prior Tranche is Fully Repaid, Multiples of 5% of Each Issue Amount, Limit of Callable Dates 5) To be Retained by Student Loan Credit Guarantee Fund

Student Loan Securitization(SLBS) 9 q Major Roles of KHFC § Guarantor Ø Guarantees SLBS P&I payment Ø Eliminate Credit risks of student loans – Student Loan Credit Guarantee Fund provides 90% partial loss coverage Ø Covers Liquidity risks in case actual prepayment is slower than expectation Ø Removes Extension Risks § Trustee Ø Pays principal and interest to SLBS investors Ø Publishes performance information of underlying student loans Ø Prepares and publishes financial statement of the Trust Ø Manages cash in the Trust Ø Reconciles student loan P&I repayment amount Ø Monitors servicer activities and implements measures to reduce losses

Summary Information on KHFC 10 q Establishment of State-run Secondary Mortgage Market Enterprise § Korea Housing Finance Corporation Act enacted in Dec. 2003 Ø Integrated mortgage securitization business of Ko. Mo. Co and guarantee business of Housing Finance Credit Guarantee Fund § KHFC officially established on Mar. 1, 2004 § Korean government & Bank of Korea are sole contributors of the capital Ø Current capital base : 376 billion won Ø Authorized capital : 2 trillion won § Losses, in excess of reserves, to be covered by the government (KHFC Act) § KHFC’s own account to be separately managed from that of the Housing Finance Credit Guarantee Fund

Summary Information on KHFC q Major Lines of Business § Purchases mortgages and issues MBS Ø Provides guarantee on MBS (up to 50 times of capital) § § Purchases mortgages and Issues MBB (Mortgage-Backed Bond) Mortgage Portfolio Business (Issuance of MBS or MBB required) Provides credit lines to lenders to support the origination of mortgages Issues unsecured Bonds (up to 10 times of capital) and Borrows from financial institutions üPurchases Student Loans and Issues KHFC guaranteed SLBS üManages Student Loan Credit Guarantee Fund § Manages Housing Finance Credit Guarantee Fund Ø Guarantee for Individuals – Chonsei Loan, Home Purchase Loan, Installments Loan Ø Guarantee for Housing Builders 11

Summary Information on KHFC q Student Loan Securitization Business § As of October 31, 2005 Ø The first SLBS Issuance successfully completed (517 billion won) – The first SLBS issuance completed in October 25, 2005 q Mortgage Securitization Business § As of October 31, 2005 Ø 7. 3 trillion won of mortgages originated (99, 537 mortgages) – Currently mortgages are originated by 21 Approved Lenders Ø 16 MBS Issuances successfully completed (Total 6. 5 trillion won) 12