Monday, July 28, 2008

Paulson: GSE's Now Funding 70% of Residential Mortgages

At a news conference held today to promote "covered bonds" as a method to increase mortgage financing and improve underwriting standards, Treasury Secretary Paulson pointed out that:

The housing government-sponsored enterprises, Fannie Mae, Freddie Mac and the Federal Home Loan Banks, and the Federal Housing Administration are funding more than 70 percent of residential mortgages during these months of market stress.

Covered bonds are debt securities backed by cash flows from mortgages or public sector loans. They are similar in many ways to asset-backed securities created in securitization, but covered bond assets remain on the issuer’s consolidated balance sheet.

Because the assets of covered bonds remain on the balance sheet of the issuer, the issuer has incentive to make sure the assets issued are quality assets, unlike under asset-backed securities where issuers have no further obligation with respect to assets securitized.

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