U.S. Covered Bonds on MBA's Legislative Agenda for 2010

The Mortgage Bankers Association's legislative and regulatory priorities for 2010 include measures to support covered bonds as a funding tool in the U.S. 

The organization's official statement (Jan. 12) reads in part:

"MBA supports legislation and regulation to provide for equal treatment of covered bonds with other qualified financial contracts.  Covered bonds are debt securities backed by cash flows from mortgages that remain on the issuer's consolidated balance sheet.  Covered bonds provide an additional source of liquidity for residential and commercial real estate financing. Although covered bond transactions are not currently in widespread use, prospective revisions to accounting regulations and an improvement in market spreads could provide further incentive for their increased use.  In short, MBA believes covered bonds represent one of the most affordable wholesale funding instruments for financial institution asset-liability management" (italics added).

Currently, the Mortgage Bankers Association is collaborating with sponsors of an upcoming (Jan. 29) Washington, D.C. roundtable discussion and webcast on the topic of "Why the U.S. Needs Covered Bonds." 

Covered bonds have been on the organization's radar for quite some time.  For example, a January 2009 "white paper" on the future of the U.S. secondary mortgage market listed this funding tool among options to consider.

Covered bonds are dual-recourse debt obligations that include recourse to a pool of assets — the cover pool — which secures or "covers" the bond if the issuer becomes insolvent.  They are widely used in Europe for real estate and public sector financing.

To download a PDF of Mortgage Bankers Association's "2010 Agenda" and "2010 Legislative and Regulatory Priorities" (together totaling six pages), click on "MBA 2010" under "Attachment," below.