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Lawmakers Aim to Jumpstart U.S. Covered Bonds Market

If a new Senate bill becomes law, it could finally create a long-awaited covered bond market for the nation, effectively making mortgages easier to securitize and increasing their appeal for investors.


Earlier Wednesday a bipartisan group of senators, led by Sens. ""Kay Hagan"":http://hagan.senate.gov/ (D-North Carolina) and ""Bob Corker"":http://corker.senate.gov/public/ (R-Tennessee), introduced the ""United States Covered Bond Act of 2011"":http://www.hagan.senate.gov/files/111109_CoveredBond_BillText.pdf in order to kick-start what some regard as necessary for a full-fledged housing recovery.

""With the housing market still struggling to recover, covered bonds are a common sense solution that can help bring private capital back into the housing market,"" ""Sen. Chuck Schumer"":http://schumer.senate.gov/ (D-New York), another co-sponsor behind the bill, said in a ""joint statement"":http://hagan.senate.gov/?p=press_release&id=1529.

""Developing a U.S. covered bond market will also allow more U.S. investors to put their money to work supporting the American economy, rather than investing in covered bonds elsewhere, which they are doing now,"" he added.


The bill ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô sister to a House bill introduced earlier this year by ""Rep. Scott Garrett"":http://garrett.house.gov/ (R-New Jersey) ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô would establish a broad legal framework to form securities from mortgage pools insured by other asset-backed securities.

European nations have long benefited from a covered bond market, with legal bodies in place for bonds in such countries as the United Kingdom and Germany, alongside 28 other countries.

U.S. dollar investors continue to benefit from covered bond markets in these countries, with foreign financial institutions issuing more than $30 billion in securities to investors this year.

Hagan added in the statement that the creation of a covered bond market would offer ""a powerful tool that can be used to fund loans to small businesses and households. This bill would level the playing field for U.S. financial institutions and help strengthen our U.S. economy.""

The ""U.S. Covered Bonds Council"":http://www.sifma.org/committees/capital-markets-group/covered-bonds-council/overview/, a group in association with the ""Securities Industry and Financial Markets Association"":http://www.sifma.org/, responded favorably to the proposed legislation.

Signaling the association's ""strong support"" for the bill, ""Kenneth Bentsen"":http://www.linkedin.com/pub/ken-bentsen/4/a03/162, EVP for public and advocacy, said in a ""separate statement"":http://www.sifma.org/news/news.aspx?id=8589936362 that ""[w]e believe a dedicated legislative covered bond framework will provide investors with the certainty necessary for a robust covered bond market to develop in the U.S.

""Efforts to further support sustained economic growth should ensure that financial intermediaries have more rather than fewer tools at their disposal to maintain a constant flow of credit through the economy,"" he said.

About Author: Ryan Schuette

Ryan Schuette is a journalist, cartoonist, and social entrepreneur with several years of experience in real-estate news, international reporting, and business management. He currently lives in the Washington, D.C., area, where he freelances for DS News and MReport.

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