Mortgage Service Japan Limited

If mortgage interest rates rise, building materials and raw material prices increase, consumer sentiment toward home purchases deteriorates due to economic downturn, or the number of housing starts and transactions declines, the business performance of the Group may be affected. Since the Group handles financial services and its main customers are housing businesses and consumers purchasing homes, it has a structural sensitivity to changes in the external environment such as interest rate trends, housing tax system, and consumption tax reform. As a countermeasure, the Group continuously monitors market trends, but since these are external factors, direct control is difficult.

There are multiple financial institutions handling Flat 35, and four other housing defect liability insurance corporations exist in addition to the Company, resulting in competition in each business area. Currently, the ability to provide a combined, integrated set of services for housing businesses serves as a differentiating factor, but if competition intensifies due to improvements in competitors' competitive advantages or new market entrants, the Group's relative competitive advantage may decline, affecting its business performance. The Group continues to promote differentiation by leveraging its strength of providing integrated services.

The Group has obtained multiple licenses and designations that form the premise for business continuity, including registration as a money lender under the Money Lending Business Act (Kanto Finance Bureau Director (6) No. 01464), designation as a housing defect liability insurance corporation under the Act on Assurance of Performance of Specified Housing Defect Warranty Liability (Designation No. 5), and registration as a registered housing performance evaluation body under the Housing Quality Assurance Act. If a material violation of laws and regulations occurs, the Housing Finance Business may become unable to continue due to revocation of the money lender registration, or the Housing Defect Insurance Business may become unable to continue due to revocation of the designation as a housing defect liability insurance corporation. The Group strives to establish a compliance system through internal regulations, management structures, and employee training, but costs may also arise in response to regulatory amendments.

The Company's flagship product, "MSJ Flat 35," is a fixed-rate mortgage loan premised on being certified by the Japan Housing Finance Agency (the Agency) as a party to a housing loan receivables purchase agreement, and its business performance is directly affected by changes in the Agency's system and policies. If the Agency undergoes system changes or policy shifts, this may have a material impact on the performance of the Housing Finance Business. Since the Company alone cannot control the system design, maintaining a relationship with the Agency is an important risk management element.

Funds for Flat 35 loans are temporarily procured from private financial institutions and fully repaid after the sale of the receivables to the Agency, but there is a possibility that funds may not be procured as planned due to a decline in creditworthiness resulting from a significant deterioration in the Company's business performance or due to circumstances on the part of private financial institutions. In addition, the procurement interest rate for the bridge loan (MSJ Proper Bridge Loan) is based on TIBOR, and if a sharp rise in the procurement rate cannot be immediately passed on to the lending rate, or if passing it on results in loan terms that are inferior to those of competitors, this may affect the performance of the Housing Finance Business. Fluctuations in the interest rate environment are a major financial risk factor that could directly pressure earnings.

A portion of the Company's operating loans is treated as off-balance-sheet through securitization transactions using special purpose companies, and the amounts involved are material. Since this is a field requiring advanced expertise in accounting, law, and finance, if operating loans or short-term borrowings that should be recorded on-balance-sheet are erroneously treated as off-balance-sheet due to an accounting misjudgment, this may affect financial indicators such as return on total capital. The Company has established a system to carefully examine new schemes with legal experts and others before commencing transactions.

Applications for and provision of services in the Housing Defect Insurance Business and the Jutaku Academeia Business, as well as the storage of business-related data, depend on business systems managed by the Group, and the Housing Finance Business also utilizes the Agency's system and internal systems. If a business system or stored data experiences a prolonged outage due to an unforeseen disaster, cyberattack, sudden surge in access, application malfunction, or similar event, this may affect business performance. The Group has implemented measures such as dual backups, firewalls, and virus checks, and has established a system for prompt response in the event of a malfunction.

Due to the nature of its business, the Group collects a large amount of personal information, and if an information leak occurs, this may affect business performance through claims for damages or a decline in credibility. In addition to system-based leak prevention measures such as automatic password attachment for attachments sent by email, the Group clarifies and thoroughly enforces internal rules and procedures and conducts training for officers and employees. Given that the Group holds large volumes of financial-related personal information such as mortgage and insurance data, the importance of information management is particularly high.

In the Housing Finance Business, the Company has formed alliances with loan-handling business companies, consulting companies, and housing construction businesses nationwide as alliance partners, and the majority of mortgage loan branches deployed nationwide are operated by agency stores that are alliance partners. If problems arise in transactions with alliance partners, this may have a direct impact on the performance of the Housing Finance Business. Similarly, the Housing Defect Insurance Business is highly dependent on its network of referral agents and outsourced contractors (inspection companies and ground survey companies), and disruptions in transactions with these parties could also affect business performance.

Risks associated with housing defect insurance and Ground Warranty in the Housing Defect Insurance Business, as well as the Housing Equipment Extended Repair Warranty in the Jutaku Academeia Business, are hedged through reinsurance and non-life insurance contracts with non-life insurance companies. If changes in the policies of non-life insurance companies lead to rising insurance premiums or difficulty in continuing transactions, this may affect the performance of each business. In addition, if insurance claims occur in a temporary concentration exceeding expectations, House G-Men Co., Ltd. bears the primary obligation to pay insurance claims, and expenditures may exceed the level of reserves for outstanding claims and policy reserves.