Covered Bonds in the United States – Latest News
Updated: 01/20/2017
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See the infographic on U.S.$ covered bond statistics for the period 2010 through 2016.
Commentary
New Administration – what does it mean? Still too early to tell. Treasury Secretary-designate Mnuchin indicated in his confirmation hearing testimony that the administration intended to move to address Fannie Mae and Freddie Mac. There has also been some quiet indications that covered bonds are again on the agenda. However, it is still early days, too early to know if covered bonds will play a role in a new housing finance system.
It would not be a surprise to see the Republicans in Congress tackle GSE reform. But the nature of the reform is not clear. It is likely that some reduction in the role of the Government in housing finance would be part of the reform, but this will be a contentious issue with the Democrats and one they might filibuster in the Senate, so it will take some support from Democrats to reach a 60-vote majority needed to defeat a filibuster. That means compromise somewhere to bring in the necessary Democrats.
The covered bond picture is more nuanced. First, the role of the GSEs in housing finance has to be reduced before the banks will look to other means of finance for mortgage loans. Second, the champion of covered bonds over the last six years has been Representative Scott Garrett (R-NJ), who was defeated in the election and will not be returning to the House next year. There is no apparent successor to pick up the baton. With an expected heavy focus on reducing banking regulation, covered bond legislation may never see the light of day. So keep your fingers crossed for someone to perceive the benefit of covered bonds in a changed housing finance framework.
Why do investors like covered bonds? – What is it about covered bonds?
Why not covered bonds? – What’s to lose?
Canada Housing Overvalued – The Bank of Canada reports that Canadian housing is up to 30% overvalued. However, the Bank says that household imbalances remain the most important risk to stability.
Use CBs to Restore PLS – Can covered bonds assist the recovery of the PLS market by allowing the GSEs to shrink faster?
GSE Reform – A disquieting process
Mortgage Rates – Are they uncompetitive?
US Legislation – Why is legislation taking so long? Does the U.S. not see the benefit of covered bonds?
Pass-Through CBs – Given the long RMBS history in the U.S. would pass-through covered bonds work here?
Housing Bubble? Is there a housing bubble in Canada?
Non-Canada US$ Issuers
KHFC and Kookmin return to the U.S. dollar market, each for $500 million, on Nov 12 and Jan 22Westpac – Back in the dollar market with a $1 billion 2.250% offering due 2020 on Nov 2
KHFC – In its initial legislative offering, Korea Housing Finance priced a 5 year $500M 2.500% on Nov 12
Kookmin Bank – In the first ever Korean legislative covered bond, Kookmin priced a5 year $500M 2.125% on Oct 14
DBS Bank – in its inaugural covered bond offering, DBS priced a $1.000B 1.625% three year in a 144A offering on Jul 29
Westpac and CBA – Australians are half of the July supply: Westpac with an $800 M 3yr on Jul 7 and CBA with a $1,000 M 5yr on Jul 9
Hot Topics
CBs as HQLA – should covered bonds qualify in U.S. as high quality liquid assets for LCR purposes?Encumbrance – why such a hot topic?
Anemic RMBS – CMBS and CLOs are booming, but not RMBS. What does that tell us?
Canadian Issuers
| Currency | # Offerings | Amount |
|---|---|---|
| € | 14 | 12,861 |
| $ | 6 | 9,250 |
| C$ | 3 | 4,500 |
| £ | 10 | 2,625 |
| A$ | 1 | 400 |
Regulatory Developments
BCBS – Basle has announced increased capital requirements for securitization exposures. See the full report.Final Risk Retention – The SEC has finalized its risk retention rule for securitizations. See the full text of the final rule.
Reg AB II and Covered Bonds – Generally Reg AB II is not going to apply to covered bonds. Canadians?
Final Reg AB II – SEC finalizes the amendments to Regulation AB
U.S. Treasury – United States Department of the Treasury has requested comments on the private sector development of a well-functioning private label securities (PLS) market for residential mortgage loans. See the original request.
LCR in Canada Covered bonds qualify for LCR Level 2A.
Volcker Rule – only foreign bank covered bonds are carved out of the prohibitions in the rule?
Technical Notes