Moore Mortgage Solutions

    Covered bonds may soon be the new buzz word whereas mortgage backed securities have become the bad boys of the mortgage industry.

    Why the buzz?

    Yesterday, Treasury Secretary Henry Paulson announced that the Treasury along with the country’s four largest banks will attempt to jump-start covered bonds in the U.S.

    Covered bonds first appeared in Germany in 1770 and are called Pfandbriefe. Other countries followed each with their own guidelines. Then in 1988, European Union set up guidelines for these covered bonds to unify the various covered bond systems.

    Covered bonds (can be a pool of mortgages) are similar to mortgage back securities except the banks keep them on their books. They can borrow against them to free up money. And if the bank fails, the lender has preferential claim to them.

    Whereas mortgage back securities (also a pool of mortgages) are assets that a bank can sell. It is typically an off-balance sheet transaction and the risk associated with them is also eliminated to that bank. The bank sells it and gets cash for it.

    The problem has become that these mortgage back securities’ value has gone down. The banks can’t sell them for what they were worth to get them off their books. Without getting them off their books, the banks can’t lend more money for mortgages.

    What does this mean to you and me?

    Without infusing more available money into the market, banks are having a hard time finding ways to raise cash to lend money for mortgages. And without money to lend, the housing market will only get worse.

    The above is a very simplistic explanation. To learn more, go to these links: Covered Bond Can Rebuild America,and What is a Covered Bond.

    In the meantime, please feel free to contact me with your mortgage questions and needs.

    And make each day an inspired one!

Betsy Moore

206-331-2749

www.mortgagesolutions.com