Top Japan banks hold $44.3bln in GSE debt -Nikkei

TOKYO, July 15 (Reuters) - Japan's three megabanks had roughly 4.7 trillion yen ($44.3 billion) in debt securities issued by top U.S. mortgage finance agencies as of the end of March, while major insurance firms' exposure totaled more than 4 trillion yen, the Nikkei business daily said on Tuesday.

Japan's Financial Services Agency will start looking into domestic financial institutions' exposure to debt issued by Fannie Mae (FNM.N) and Freddie Mac (FRE.N), whose shares prices have plunged more than 70 percent since the start of this year, the Nikkei said.

Debt issued by Fannie and Freddie are backed by mortgages made to borrowers with strong credit, and domestic financial institutions believe those instruments are unlikely to see major price declines, the paper said.

It also said market participants are still confident the value of those securities will not plummet because of the "implicit guarantee" that the U.S. government will step in to rescue the companies if necessary.

Fannie and Freddie together finance about half of U.S. homes and are seen as vital for stabilising the worst housing slump since the Great Depression some 80 years ago. [ID:nSP52252]

But as mortgage defaults rise, even among borrowers with seemingly solid credit, concerns have grown that the two agencies may need more money to cover heavier losses.

Mitsubishi UFJ Financial Group (8306.T), Japan's top lender, had the largest exposure among the three megabanks, holding 3.3 trillion yen in bonds issued by the two U.S. firms, the paper said.

That compares with No.2 Mizuho Financial Group's (8411.T) 1.2 trillion yen and 200 billion yen at Sumitomo Mitsui Financial Group (8316.T), the third-biggest bank, the paper said.

Among insurers, Nippon Life Insurance Co had a 2.5 trillion yen exposure, the paper said.

On Sunday, the U.S. Treasury and the Federal Reserve said they would lend money and buy equity if needed to rescue the two pillars of the U.S. housing market. ($1=106.20 Yen) (Reporting by Aiko Hayashi; Editing by Hugh Lawson)