News on Covered Bonds: Covered Bonds Bill considered again to promote covered bonds in US

Covered Bonds Bill considered again to promote covered bonds in US


5 May, 2011: Covered Bond Bill introduced by Rep. Scott Garrett and Rep. Carolyn Maloney in March, 2011 for the development of covered bond market in the US and was considered and approved by a sub-committee of House of Representatives recently. The Bill will be put up for consideration before the House Financial Services Committee. The Bill has been several times before put up for consideration (see our news here). Some of the salient features of the bill are:

  • The Bill provides requirement of eligible issuer, single cover pool for issuance, eligible assets etc.
  • Covered bond regulatory oversight program to regulate the covered bonds issued and the covered bond regulator shall apply the standards established by the Secretary to evaluate the covered bonds to be issued by an eligible issuer for approval. The Secretary is to maintain a registry that would have a record of all the approved covered bonds.
  • The regulators may establish minimum over-collateralization requirements for covered bonds backed by eligible asset classes.
  • The Bill places requirement for monthly reporting to the Secretary, covered bonds regulator, indenture trustees, the bondholders and independent asset monitor.
  • Covered bondholders to retain claim against the issuer for any deficiency with respect to the covered bonds or related obligation and the obligation of the issuer shall remain absolute.
  • In case an uncured default occurs, before the issuer enters conservatorship, receivership, liquidation or bankruptcy, an estate shall be created separate from the other assets of the issuer for the affected covered bonds.

The Bill intends to create a new market for financing mortgages and help revive the housing markets in US. The text of the Bill is available here.

[Reported by: Nidhi Bothra]