Category Archives: FED Mortgage Role

Role of the federal government in residential mortgage lending

Videos

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These are videos from recent covered bond conferences and other events that relate to Canadian or U.S.$ covered bonds.


European Covered Bond Directive • Euromoney

Covered bonds and securitisations are easily confused • Euromoney

TCB Roadshow 2022 | The implications of growth: Canadian covered bonds in 2022 and beyond

Mayer Brown Webinar • 2020
Covered Bonds Update in the United States
Jerry Marlatt and Laura Drumm

US $ covered bonds – back again • Euromoney 2019

Equal treatment for non-EU covered bonds? What’s needed? • Euromoney 2018

Euromoney/ECBC Covered Bond Congress 2018, 13 September 2018 • Munich
Concerns about the Covered Bond Directive.

Euromoney/ECBC Covered Bond Congress 2018, 13 September 2018 • Munich
Outlook for the Canadian covered bond market and prospects for the U.S. market

Euromoney/ECBC Covered Bond Congress 2018, 13 September 2018 • Munich
Impact of MREL and TLAC on covered bond issuance.

Euromoney/ECBC North America Covered Bond Forum, 19 April 2018 • Vancouver
Keynote Address by Sandra Johnson, FHFA

Euromoney/ECBC North America Covered Bond Forum, 19 April 2018 • Vancouver
Interview with Sandra Johnson, FHFA

Euromoney/ECBC North America Covered Bond Forum, 19 April 2018 • Vancouver
Interview with Jerry Marlatt on “What Hope for America”.

Congressman Jeb Hensarling On Covered Bonds • 2010

Congressman Scott Garrett On Covered Bonds • 2010

Garrett Introduces Covered Bonds Amendment • 2010




U.S. Housing Overview

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U.S. Housing Overview

The continued conservatorship of Fannie Mae and Freddie Mac exposes taxpayers to continued risk. &nbsp The failure to address the GSEs and release them from the conservatorship evidences a significant failure of political will.

This chart from the latest monthly report from the Housing Finance Policy Center at the Urban Institute provides a fine summary of the government dominance of U.S. residential housing finance.   This imbalance with private sector financing is imposing significant risk on the GSEs and therefore on the government and taxpayers without analysis or justification.   There should be a fundamental analysis of the government’s housing policy and how much risk needs to be taken by the taxpayers in order to achieve the government’s goals.  

Why is CB legislation tied to GSE reform?

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Why is the adoption of covered bond legislation linked to housing finance reform? Housing finance reform is all about the role of the GSEs. While covered bonds certainly can be used to finance residential mortgage loans, they do not require any form of government support. The consideration of the proper role of the government in housing finance can occur independent of covered bonds. However, I hear from many sources that covered bond legislation would only be considered after GSE reform had been adopted or perhaps considered with GSE reform.

There is no apparent logic to this position. Covered bonds are a private sector financing technique that has proved very effective in other jurisdictions. There is nothing in GSE reform that would be a necessary predicate to the issuance of covered bonds by U.S. banks. Covered bond legislation would not touch the status of the GSEs. It is possible that covered bond issuance by U.S. banks could develop into an attractive alternative to financing through the GSE and thus reduce the tension in GSE reform, but that would be beneficial to GSE reform.

It seems as though both sides are determined to keep as much pressure on GSE reform as possible in order to achieve their objectives and not permit any private sector initiatives to sidetrack the discussion until the role of the government in housing finance has been solved. But this seems to put the cart before the horse. Shouldn’t the government intervene only where the private sector is not functioning properly? Wouldn’t it make sense to let private sector initiatives develop first before assigning the government a role? If we can agree that the answer to those two questions is yes, why not adopt covered bond legislation and see how the market develops while we debate how to wind down the GSEs and what would be the appropriate future structure for the government’s role in housing finance?

Certainly we can have a fulsome debate on how the government can support housing access for those who need assistance independent of how covered bond legislation is drafted. Certainly if covered bonds, RMBS and the federal home loan banks fail to provide adequate private sector funding for residential mortgage loans there may be a need to consider a larger government role.

It is not essential that covered bonds be enabled through legislation as it is possible to achieve covered bond issuance through securitization techniques, as has been done in other countries. See, e.g., Time for a US alternative. However, investors will have more confidence in a covered bond sector established through legislation and the market may be expected to develop quicker with legislation. Enacting legislation for covered bonds would be a low cost experiment that would have no harmful side effects. Covered bond legislation, therefor, should be enacted before GSE reform is attempted so that we have a better chance to assess what works in the private sector before designing the government’s role in housing finance.

Treasury trying to encourage private funding

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Speaking in Washington on June 26 before the Making Homes Affordable Five Year Anniversary Summit, U.S. Secretary of the Treasury, Jacob Lew, gave a speech in which he addressed the need for housing finance reform. He also noted almost a complete absence of a private label securities market almost six years after the crisis and a need to restore private funding to the residential mortgage market. He noted that a series of questions was posted to the Treasury website seeking comment by August 8, 2014 on recommendations for reviving the private label securities market.

Neither Secretary Lew’s speech nor the posted questions mention covered bonds. Clearly covered bond legislation for the United States should be considered by the Treasury. The legislation introduced in 2011 by Representative Garrett, H.R. 940, passed the House Financial Services Committee by a very strong bi-partisan vote of 44-7. Passage of covered bond legislation should be easily achievable with Treasury backing and covered bonds could provide an important channel of private funding for the mortgage market. After all, covered bonds provide funding for about €3 trillion in the European market and the domestic U.S. market for covered bonds issued by foreign has shown healthy growth.