The Government Housing Loan Corp. will be allowed to securitize and sell mortgages after buying them from private financial institutions, according to a proposal presented Thursday to the ruling Liberal Democratic Party.

The draft legal amendment also calls on the corporation to take responsibility for payment of principal and interest when selling mortgages held by financial institutions.

It says the measures are designed to support financial institutions in selling long-term, fixed housing loans.

The Land, Infrastructure and Transport Ministry explained the draft to the LDP’s land and transportation division, ministry officials said.

A supplementary clause in the draft says that by the end of fiscal 2006, the government will abolish the corporation and launch an independent administrative agency to take over its operations.

The ministry hopes the Cabinet will adopt the draft as soon as Wednesday, the officials said.

The clause was written in response to a 2001 government plan to consolidate and streamline public corporations and other public entities as part of efforts to promote administrative reforms.

The draft says the government will set up a fund and special account to buy mortgages from financial institutions, and establish another fund and account to guarantee principal and interest payments on mortgages held by financial institutions.

The establishment of each is designed to boost transparency in marketing mortgages through the two measures.

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