Paulson Touts Potential of Covered Bonds

Covered bonds could provide a new source of mortgage funding, Treasury Secretary Henry Paulson says, and he is encouraging the Federal Deposit Insurance Corp.'s efforts to develop a covered-bond market in this country. "As Treasury seeks to encourage new sources of mortgage funding in the United States, improve underwriting standards, and strengthen financial institutions' balance sheets, covered bonds have the potential to serve these purposes and reduce the cost for first-time homebuyers, and existing homeowners to refinance," Secretary Paulson told an FDIC mortgage forum. The FDIC has solicited comments on covered bonds, and the agency is expected to approve a final policy statement at a July 15 board of directors meeting. The Treasury secretary stressed in his remarks that improving the availability of mortgage credit is crucial for a recovery in the housing market. The "single most powerful step" Congress can take is passing a bill that strengthens the regulation of Fannie Mae and Freddie Mac, Mr. Paulson said. He reported that the Hope Now workout initiative is a success in terms of stopping preventable foreclosures. But he said he doubts whether pending legislation that would give the Federal Housing Administration more authority to refinance underwater mortgages would have a "good result" or prevent foreclosures that are "inevitable."