FAQ  |  Search  |  Memberlist  |  Usergroups   |  Register  |  Profile  |  Log in to check your private messages  |  Log in 

 Will Covered Bonds Replace The Private Label MBS Market? View next topic
View previous topic

Post new topicReply to topic
Author Message
Cherry Bomb

Joined: 12 Dec 2007
Posts: 195
Location: Coral Gables, Fl

Will Covered Bonds Replace The Private Label MBS Market?
PostPosted: Mon Jul 28, 2008 11:19 pm Reply with quoteBack to top

The mortgage backed securitization market for non-GSE loans may never return as previously structured. The moral hazards of placing questionable assets into a securitization trust that is bankruptcy remote from the issuer with the blessing of an incompetent rating agency may be too great for investors to overcome.

Finance companies could not compete against the securitization alchemy of turning junk into AAA.
Yield and overcollateralization (low LTVs) are a necessary requirement for profitabilty in subprime. Both were eliminated by drinking the Wall Street Kool Aid.

The residential finance subsidiaries of insurance companies were a successful business model for many years. As these were portfolio loans and hence they had to eat their own cooking, the covered bond structure may be able to bridge the existing credibility gap between issuers and investors.

Covered Bonds have wide usage in Europe. Since the assets never leave the issuer's balance sheet and non-performing loans can be replaced within the bond, this may be the way forward for mortgage companies in the US.

PIMCO has an article which describes the basics:


The FDIC issued a Policy Statement on April 15 which places major constraints on investments by banks in covered bonds. As this does not limit non- depositories, this may be the ideal structure for a private equity firm or hedge fund to leverage a subprime loan portfolio:


"Government is the great fiction, through which everybody endeavors to live at the expense of everybody else."

"Ah, you miserable creatures! You who think that you are so great! You who judge humanity to be so small! You who wish to reform everything! Why don't you reform yourselves? That task would be sufficient enough."
— Frédéric Bastiat
View user's profileSend private messageSend e-mailVisit poster's website
Display posts from previous:      
Post new topicReply to topic

 Jump to:   

Merge topics 

View next topic
View previous topic
You cannot post new topics in this forum
You cannot reply to topics in this forum
You cannot edit your posts in this forum
You cannot delete your posts in this forum
You cannot vote in polls in this forum

Powered by phpBB 2.0.22-2 (Debian) © 2001, 2002 phpBB Group :: FI Theme :: All times are GMT