Treasury Secretary Timothy F. Geithner told the Senate Banking Committee yesterday that he backed legislative efforts to create a new market for financing mortgages that help wean the $10.6 trillion United States mortgage market from government support, according to a Reuters article from Washington printed in today's edition of The New York Times.
He indicated he endorsed efforts to create a market for "covered bonds," which are securities issued by banks and backed by pools of loans and the loans underlying covered bonds remain on the issuer's balance sheet, the article said.
Currently, lenders sell many of the loans they make to Fannie Mae and Freddie Mac, which repackage them as securities for investors. The government now backs almost 9 in 10 new mortgages, the article noted.
"In a covered bond system," the article continued, "banks can borrow against the value of the underlying mortgages to obtain fresh capital to extend further loans" and "the bond investors have the right to those underlying assets in the base of a bank default."
The article noted that "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 investors would have seniority over the agency in the event of default." Mr. Geithner, the article added, said that such concerns were legitimate "but that is something we can work through."
Mr. Geithner cautioned Congress not to act too quickly because "the battered housing market was still fragile, but said he would to see changes in place within two years," the article said.
He indicated he endorsed efforts to create a market for "covered bonds," which are securities issued by banks and backed by pools of loans and the loans underlying covered bonds remain on the issuer's balance sheet, the article said.
Currently, lenders sell many of the loans they make to Fannie Mae and Freddie Mac, which repackage them as securities for investors. The government now backs almost 9 in 10 new mortgages, the article noted.
"In a covered bond system," the article continued, "banks can borrow against the value of the underlying mortgages to obtain fresh capital to extend further loans" and "the bond investors have the right to those underlying assets in the base of a bank default."
The article noted that "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 investors would have seniority over the agency in the event of default." Mr. Geithner, the article added, said that such concerns were legitimate "but that is something we can work through."
Mr. Geithner cautioned Congress not to act too quickly because "the battered housing market was still fragile, but said he would to see changes in place within two years," the article said.
Architecture Critic
Carter Horsley
Since 1997, Carter B. Horsley has been the editorial director of CityRealty. He began his journalistic career at The New York Times in 1961 where he spent 26 years as a reporter specializing in real estate & architectural news. In 1987, he became the architecture critic and real estate editor of The New York Post.
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