Shortly after, the US Treasury announced its best practices guide for US covered bonds, mirroring the FDIC’s guidelines and making a few additions. The main ones are the limit on eligible mortgages to include only performing, first-lien mortgages with a maximum LTV of 80%, and the restriction of geographic concentration in a single metro area to 20%. Citi, Bank of America, JPMorgan, and Wells Fargo issued a joint statement of support, fuelling optimism for the successful establishment of a US covered bond market.
The proposed framework might be a good thing, giving beleaguered mortgage lenders an alternative and relatively cheap funding source, provided action follows words.
Bankers are hopeful that the clarification of the FDIC’s treatment of covered bond holders will aid issuers and attract investors to the product.
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