Will Government's Promotion of Covered Bonds as Mortgage Funding Mechanisms Bring Back Investors to US Mortgage Market?

Implications: This article is important because it announces and describes: a) the US Treasury's support of covered bonds, an on-balance sheet method of funding mortgage originations, as an alternative to off-balance sheet mortgage securitizations or mbs b) Four major US banks announcements of their intentions to bring covered bond issues to market in the near future and and their commitment to provide pricing information in order to facilitate the trading of covered bonds and c) the FDIC's support of a covered bond market and its policy statement describing how it would treat covered bond investors in the event that an issuing bank become insolvent. The government and market participant actions described in the article are remarkable because they appear to contemplate an on-going involvement of the US Treasury and FDIC in the funding of mortgages that is more hands-on than any such actions to date, creating a defacto US govt gtd covered bond market.

Analysis: I believe that the covered bond market advocated in today's announcement by the US Treasury, coupled with the "Best Practices" posted on its website and the FDIC's policy statement (also on its website) with respect to covered bond investors in the event of a covered bond bank issuer insolvency create, in effect, a US government guaranteed mechanism for funding residential mortgages.