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With financing for both residential and commercial real estate mortgages still tight, and the securitization market all but stagnant by historical standards, policymakers have been pushing lenders to get the wheels of finance[IMAGE]churning again â€" to make sound and affordable home loans available to clear out backlogged inventories and to extend and renew commercial property loans to avert another real estate crisis. It's a fine line to walk with new regulatory compliance issues and constrained capital, but one House representative thinks he has the answer.
Rep. Scott Garrett (R-New Jersey) introduced the ""United States Covered Bond Act"":http://cmbs.informz.net/cmbs/data/images/garrett-kanjorski-bachus.pdf Thursday â€" a measure he says will help facilitate a more robust bond market, and as a result, add liquidity and certainty to the nation's capital markets and create broader choices for mortgage financing.
""As the U.S. continues to recover from the financial crisis, it is essential that Congress examines new and innovative ways to unthaw our locked credit markets and encourage private capital to confidently re-engage by turning cash now on the sidelines into active investments in our country's future,"" said Garrett, ranking member of the House Financial Services Subcommittee on Capital Markets.
Covered bonds are one of the oldest and most successful financing vehicles used in Europe. They represent a $3 trillion market over there and are a major source of mortgage liquidity. The covered bond legislation introduced by Garrett seeks to bring those same benefits here to the States.
The bill establishes regulatory oversight of covered bond programs, includes provisions for default and insolvency of
[COLUMN_BREAK]covered bond issuers, and subjects covered bonds to appropriate securities regulations by federal regulators.
The covered bond proposal has been in the works for a while now. Former Treasury Secretary Henry ""Paulson touted covered bonds"":http://dsnews.comarticles/paulson-proposes-covered-bonds-as-new-mortgage-financing-four-largest-banks-lea-2008-07-30 as a catalyst for turning the corner on the housing crisis back in July of 2008, and the Treasury even published a ""Best Practices guide"":http://www.treas.gov/press/releases/reports/USCoveredBondBestPractices.pdf for U.S. residential covered bonds.
Alongside Paulson in Washington when he put forth his covered bond proposal nearly two years ago were representatives from America's four largest bank â€" Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo â€" each of which pledged to throw their hat into the covered bond ring and kick-start this market in the United States.
A week later, Garrett brought the Equal Treatment for Covered Bonds Act of 2008 to the House floor, championing it as a means to return liquidity to the mortgage market as an alternative to securitization and a method for improving underwriting since covered bonds are typically backed by prime loans and provide assurance to investors that their investment is ""covered,"" so to speak, even if asset performance falters. That measure didn't make its way to the president's desk, but Garrett says he believes his legislative follow-up introduced Thursday, the United States Covered Bond Act, now stands a good chance for bipartisan agreement.
""Once members understand how a covered bonds marketplace works and the benefits that it can offer homeowners, I believe Republicans and Democrats can come together and provide the legislative framework necessary to create a robust covered bonds marketplace here in the U.S.,"" Garrett said.
Financial Services Committee Ranking Member Spencer Bachus (R-Alabama), who co-sponsored the bill with Garrett and Rep. Paul E. Kanjorski (D-Pennsylvania), added, ""The collapse of Fannie and Freddie and the taxpayer bailout that followed underscores the critical need to promote mortgage financing alternatives that are supported by the private market.""
A number of securities organizations, including the ""Commercial Mortgage Securities Association"":http://www.cmsaglobal.org/About_CMSA/Press_Releases/2010/CMSA_Applauds_Today%E2%80%99s_Introduction_of_U_S__Covered_Bond_Legislation/ (CMSA) and the ""Securities Industry and Financial Markets Association"":http://www.sifma.org/news/news.aspx?id=16404 (SIFMA) are already throwing their support behind the measure.
