Support for U.S. Covered Bond Act GrowsPosted by on June 21, 2011
Three national real estate groups voiced support for H.R.940, the U.S. Covered Bond Act, on Tuesday. Introduced by Congressman Scott Garrett, H.R. 940 would create a legislative framework to allow U.S. financial institutions to issue covered bonds. Covered bonds are a form of debt in which specific assets – typically loans – are pooled for the benefit of bondholders. A joint letter from the presidents of the National Multi Housing Council and National Apartment Association states, “Covered bonds may provide the added capital necessary for our nation’s banking system to support the surging demand for rental housing we are currently experiencing.”
Kurt Pfotenhauer, the Chief Executive Officer of the American Land Title Association, believes a covered bond could help rejuvenate the struggling real estate market. “This increased liquidity would most acutely benefit the struggling commercial real estate markets. In the wake of the economic downturn, the commercial mortgage backed securities market has remained largely inactive, even as over $1 trillion in commercial mortgages will come due and require refinancing in the next 2-5 years.” Congressman Garrett, the Chairman of the Capital Markets subcommittee, said he does not believed covered bonds are “a cure-all to our credit markets, but I do believe they would help alleviate some of the current stress they face.”
During a March 11th hearing, Mr. Scott Stengel, a partner with the law firm King & Spalding and a member of the Steering Committee for the U.S. Covered Bond Council, noted the popularity of cover bonds overseas. “Today, almost 30 countries across the continent of Europe have adopted national legislation to govern covered bonds.” Ralph Daloisio, Managing Director of Natixis Global Associates, estimates the value of these bonds at €2.5 trillion (over $3.5 trillion).
H.R.940 passed the Capital Markets Subcommittee on May 5th and will be voted on by the Full Committee on Wednesday, June 22nd.
UPDATE: The Teachers Insurance and Annuity Association - College Retirement Equities Fund (TIAA-CREF) and the Securities Industry and Financial Markets Association (SIFMA) have also voiced support for H.R. 940.
The opinions expressed below are those of their respective authors and do not necessarily represent those of this office.
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