Mortgage financing tool coming to style=”col

November 03, 2010 01:30PM

Covered bonds, a financing tool that has been popular in Europe is beginning to gain ground in the U.S. as a new way to finance residential and commercial mortgages, the New York Times reported. A covered bond is a securitized debt instrument backed by a group of high-quality assets, usually mortgages. As opposed to the assets in a securitized mortgage bond, the assets in a covered bond are kept on the issuer’s balance sheet, which may provide extra security, since the issuer will be less likely to underwrite risky loans, according to experts. Due to the safety features, most covered bonds are rated triple-A. These bonds are a $3 trillion business overseas. Though there is no established market for them yet in the U.S., they have been attracting American investors. In July, the House Financial Services Committee passed a bill that would establish a covered bond framework and experts predict that it could pass both houses next year. [NYT]