by Bill McBride on 7/28/2008 02:43:00 PM
Monday, July 28, 2008
From MarketWatch: Four big banks to kick-start covered bond market
Appearing alongside Treasury Secretary Henry Paulson, representatives of the four largest U.S. banks agreed Monday to kick-start a market for covered bonds - an alternative way to provide mortgage loans - in the United States.I'm not very familiar with covered bonds, but reports suggest they are - or were - widely used in Europe. (italics added)
Under the practice, a bank borrows funds to lend to homeowners and holds the mortgages on its books. It uses the proceeds of the mortgages to repay investors.
Covered bonds are considered more secure than mortgage-backed securities (MBSs) because the purchasers of the bonds have a direct claim on the issuer's balance sheet.
Posted by Bill McBride on 7/28/2008 02:43:00 PM