Senate Conferees Reject Covered Bond Amendment

Due to opposition from the Treasury Department, Sen. Christopher Dodd, D-Conn., blocked an amendment that would allow covered bonds to get a start in the U.S. mortgage market. Treasury is "strongly opposed" to covered bonds. "We will probably go with a study," Sen. Dodd said late last week during the House-Senate conference on the regulatory reform bill. Sen. Bob Corker, R-Tenn., said a study would be "worse" than doing nothing, because it would delay legislative action for two years. The House conferees approved an amendment by Rep. Scott Garrett, R- N.J., that would create a legal and regulatory framework for the development of a covered bond market in the United States. But the Senate conferees rejected the Garrett amendment by one vote, according to sources. This was a disappointment for banking consultant Bert Ely and other covered bond supporters. "It prevents the emergence for a new way to finance housing in this country that would actually help to facilitate the resolution of Fannie Mae and Freddie Mac," Ely said. Covered bonds won't replace the GSEs or securitization, he added, but it will "help to fill that funding gap." Meanwhile, House Financial Services Committee chairman Barney Frank, D-Mass., said he will hold a markup on Garrett's covered bond bill in July. Senate Banking Committee chairman Dodd said he would hold a hearing on covered bonds. Under the Garrett bill, the Treasury Department would be the primary regulator of covered bonds, and set standards and reporting requirements for issuers.