Treasury, Banks Promote 'Covered Bonds'

Washington Post (07/29/08) P. D1; Cho, David
Four of the country's biggest banks have joined with top financial regulators to detail the expansion of "covered bonds" as a means to breathe new life into the struggling housing market. Covered bonds are securities that a bank can sell to raise money for home loans in exchange for monthly payments from homeowners that enable the banks to pay back the bonds. Covered bonds are kept in plain sight on banks' financial statements, unlike the more complex securities that backed subprime mortgages of recent years. Treasury Secretary Henry Paulson Jr. reports that the use of covered bonds should result in better underwriting standards because banks would retain the risk of the bonds, adding, "We are at the early stages of what should be a promising path, where the nascent U.S. covered bond market can grow and provide a new source of mortgage financing."