Monday, July 28, 2008

Paulson on Covered Bonds

by Calculated Risk on 7/28/2008 02:43:00 PM

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.
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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.
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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.
I'm not very familiar with covered bonds, but reports suggest they are - or were - widely used in Europe. (italics added)