U.S. Covered Bonds on 'Back Burner'?

A new piece on the future of covered bonds in the U.S., by TheStreet.com banking and personal finance reporter Lauren Tara LaCapra, contains no surprises for those monitoring the topic.  But she does sum up the current situation nicely, including some good quotes from Tim Skeet, a managing director and head of covered bonds at Merrill Lynch based in London.

Among points that LaCapra highlights:

• The momentum from this summer’s push by federal officials has evaporated.
• The federal government’s decision to provide a more explicit guarantee of Fannie Mae and Freddie Mac-issued bonds was a blow to covered bonds—especially since Federal Home Loan Bank financing also remains available and attractive.
• Ratings agencies are now hesitant to champion the cause.

The general sense of the article is that the possibility of a covered bond market in the U.S. is down but not necessarily out. 

On the positive side, LaCapra cites Skeet as believing that the incoming Obama administration will support the covered bond initiative.  (No reasons are mentioned as to why he thinks this.)

Also, LaCapra writes, Skeet sees the current doldrums as a potentially useful period.  She quotes him as saying:  “[It is] imperative that we as an industry use the extra time wisely to design and refine the U.S. covered bond product to maximize the chances of its success and energize investors to support the project once the worst of this market dislocation is behind us.”

Read the story on the TheStreet.com website:  “Once Favored Housing Fix Put on Back Burner.”