US introduces Covered Bond Act in bid to harness mortgage financing

With concerns hanging over the US securitisation market, some industry participants are pushing the case of covered bonds as an alternative. The US Covered Bonds Act introduced in March represents a step forward, but can investors accept the quirks of the new regime?

The US has long resisted the charms of the 250-year-old covered bond market, despite numerous attempts to win over borrowers and investors.

A combination of regulatory hurdles and cheap alternative sources of funding for mortgage originators – due to the existence of Fannie Mae, Freddie Mac, Federal Home Loans banks and a strong securitisation market – has meant the world’s largest capital market has failed to be won over by covered bonds.

While the now-defunct savings and loans institution