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.
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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.