Bill for Covered Bond Market in U.S. Wins House Panel’s Bipartisan Support

Financial Services Committee approves bill that would bring European-style mortgage tool to U.S.

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A covered-bond bill that could introduce a significant new source of funding for U.S. mortgages, based on a model used in Europe, won overwhelming bipartisan approval on Wednesday in the House Financial Services Committee.

H.R. 940, the U.S. Covered Bond Act of 2011, gained the House panel’s approval by a vote of 45 in favor and seven opposed, with three committee members not present. The bill creates the legislative framework for a covered bond market in the United States.

Covered bonds, which have seen widespread use in Europe for centuries, are securities created from either mortgage loans or public sector loans. Historically, the bonds have helped provide additional funding options for issuing institutions and are a major source of liquidity for many European nations’ mortgage markets. The Bush Administration attempted in June 2008 to start a covered bond market in the United States, but that attempt failed.

Sean Davy, a managing director at the Securities Industry and Financial Markets Association (SIFMA), who leads SIFMA's Covered Bond Council, says covered bonds represent a "significant, if not primary, source of funding for mortgages" in Europe.

The bill was introduced by Rep. Scott Garrett, R-N.J., chairman of the Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, and Rep. Carolyn Maloney, D-N.Y., ranking member of the Financial Services Subcommittee on Financial Institutions and Consumer Credit.

The legrep. scott garrettislation is intended to add liquidity and greater certainty to the U.S. capital markets, Garrett (left) said in a statement.

“I’m excited to see this kind of progress on the covered bonds bill in the Financial Services Committee and I am eager for it to receive consideration on the House floor as soon as possible,” he said. “A U.S. covered bond market will both generate increased liquidity in the credit markets and level the playing field for U.S. financial institutions to better compete with their foreign counterparts.”

More than 20 organizations have submitted letters of support for the U.S. Covered Bond Act of 2011, including SIFMA, the National Association of Realtors, the American Land Title Association, the Mortgage Bankers Association, the National Multi Housing Council, the American Securitization Forum, the Financial Services Roundtable, TIAA CREF and the Institute of Real Estate Management.

Read Senate to Explore Expansion of Covered Bonds in U.S. at AdvisorOne.com.

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