U.S. Analyst Tells UK that Covered Bonds are in America’s Future

Mortgage Strategy is a financial magazine based in London.  Craig Focardi is a U.S.-based Research Area Director for TowerGroup, specializing in mortgage and consumer lending.  Recently Focardi wrote a predict-the-future “Letter From America” for the British publication titled “US mortgage banking, 2012,” which has several paragraphs discussing covered bonds.

Focardi sees covered bonds as having “potential” for the U.S. mortgage market, but he stresses the investment vehicle won’t start growing until legal and structural issues are resolved “to everyone’s satisfaction”—up to two years from now.

Meanwhile, there are other obstacles too, Focardi writes.  People would need to get used to the ballooning bank balance sheets inherent with an on-balance sheet funding source.  Perhaps more importantly, banks are way behind in the technology investment and other steps needed to achieve compliance with Basel II.

So even though Focardi describes covered bonds as “the conceptual solution to eliminate GSEs and put large banks in the driver’s seat,” he predicts deep continued federal involvement with the U.S. mortgage market for years to come.

Read the story on the Mortgage Strategy website: “US mortgage banking, 2012.”