Hat tip to SM for sending this along, from Reuters:
WASHINGTON (Reuters) – A bill to create a new market for financing mortgages that would help wean the $10.6 trillion mortgage market off government support advanced in the House of Representatives on Tuesday.
The House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises approved the legislation on a voice vote.
The bill, which the White House supports, would have to be approved by the full committee, the full House and the Senate before being sent to President Barack Obama for his signature into law.
The bill aims to establish a market for covered bonds, which are securities issued by banks and backed by pools of loans.
The loans underlying the covered bonds would remain on the issuer’s balance sheet. That is different from the current U.S. mortgage system, in which lenders sell many of the loans they make to government-sponsored Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB), which then repackage them as securities for investors.
The panel’s chairman, New Jersey Republican Representative Scott Garrett, hopes to reduce the role of Fannie Mae and Freddie Mac with a covered bond market.
“Covered bonds will serve not as a replacement” to existing credit markets but should function as “an additional arrow in the quiver” for funding home mortgages, Garrett said ahead of the vote on his legislation.
Senator Charles Schumer, a New York Democrat, said in March he was considering introducing a version of Garrett’s bill in the Senate.
Representative Carolyn Maloney, a New York Democrat, backed Garrett’s bill as one way to help the U.S. mortgage market on the margins, though she cautioned that it is not a panacea.
“Why not give it a chance?” Maloney said, adding that she considers covered bonds “a strong tool we could use to help … our housing market rebound.”
In Europe, covered bonds have long been in use. But they have failed to catch on in the United States.
In a covered bond system, banks can borrow against the value of the underlying mortgages to obtain fresh capital to extend further loans. The bond investors have the right to those underlying assets in the case of a bank default.
The Federal Deposit Insurance Corporation has warned that a covered bond system could put its bank deposit insurance fund at increased risk for losses because the investors would have seniority over the agency in the event of default.
Treasury Secretary Timothy Geithner has said the FDIC’s concerns are legitimate and would have to be worked out.
“For this to work, you would be putting the taxpayer in some sense behind private investors, and that has its own consequences, but that is something we can work through and I think it can play a greater role in our system,” Geithner said in March.
The White House and Congress are in the midst of a major policy debate on how to overhaul the finance system for buying U.S. homes, which collapsed in 2008.
Step Right Up Sheep, we have a New and Improved Ponzi scheme to foist upon you. Brought to you by the same stellar honest thoughtful people that didn’t see the the last crisis coming and have helped you all out the last two plus years, and stood by while we let The Fed wreck the dollar and KILL fixed-income savers, you know, the kind that typically save up 20% or more for a down payment or are your parents or grandparents.
This time, we will rape you on the mortgage AND put you First in Line to suck the losses with your tax dollars WHEN you default…
P.S.: We have your Best interests at heart and only want to help you. Remember, we just gave you the $ 8,000 dollar buyers credit opportunity (well, some of you that read the fine print, you other dunces we want it all back…).
P.T. Barnum was RIGHT and so was Shakespeare…
NOW IS A GREAT TIME TO BUY!!! HURRY HURRY HURRY.
VOTE FOR ME VOTE FOR ME VOTE FOR ME VOTE FOR ME
Extra Credit: Pure Financial Genius from your elected officials:
“Why not give it a chance?” Maloney said, adding that she considers covered bonds “a strong tool we could use to help … our housing market rebound.”
A strong tool, eh? I bet she gets lots of smiles in her district…
I thought at first that 3rd Generation was being too cynical, then I went back and re-read the article and changed my mind. It really does look like another tool to push risk onto the taxpayer and profits into the pockets of the financiers.
Until there is a way to bring the personal interests of the bankers in line with the interests of the taxpayers and the public at large, these things are another recipe for disaster. This is yet another case where the banker makes a little money in the short term, but the rest of us carry a real risk to lose big in the long term.
What we really need is TARP#2 or QE#1,2,3,4,5,6,etc…
It would be horrible if banks were forced to be profitable on their own.
At least something is being proposed to wean us off of the Fannie Mae/Freddie Mac system.
Just because the bonds would be security ahead of the FDIC does not necessarilly mean the taxpayers are on the hook. The FDIC is generally funded through fees assessed on member banks based on their deposits held, not taxpayer funds.
FDIC is totally bankrupt. It has had to “borrow” money from the Federal Government to close down banks. Mortgages should be in the free market and there should be no interest deduction for mortgage payments. All this ends up doing putting people in houses they cannot afford and then having the taxpayer bail out the lender.
Whenever the government gets involved, the costs go up. Housing? Check. Health Care? Check. Education? Check. The invisable hand of a free market doesn’t have a chance. And I do not believe big business should be left to their own devises. There are plenty of laws to keep them in check. That is, if they are being enforced. Currently, not so much.
They’ve been blathering about “covered bonds” for 5 years now. If it was a viable option it would’ve already happened.