Chris Cantell Discusses Markets: Administration OKs new way to help mortgage market by Michaela Vargova

WASHINGTON - The Bush administration and federal banking regulators finally decided to endorse a proposed plan of pumping money into the distressed U.S. mortgage market.
Henry Paulson, the Treasury Secretary, brought in a set of practices which are supposed to encourage banks to issue a covered bond. In general, covered bonds are issued by banks and backed by cash flows, whether from mortgages or other types of debt. The government hopes these bonds will be able to compensate for some of the mortgage financing that has disappeared. The plan appears to be paving the right path, where the arising U.S. covered bond market will be able to develope and so provide a new source of mortgage financing. Also the officials from banking giants said they look forward to being leading issuers of the new nascent U.S. covered bond market.
The effort of starting a U.S. market for covered bonds followed action of the FDIC to endorse new regulations for the bonds. The regulations are very similar to those used in Europe where, by the way, the market for covered bonds exceeds $3 trillion. Encouraging an endorsment of such a market could be also considered as a way how to achieve a decrease in dominance of Fannie Mae and Freddie Mac in the U.S. mortgage market.
Analysts assume the new initiative could bring some help and so stabilizes the U.S. mortgage market. But it is important to realize that neighter this act will solve all the problems of the U.S. financial sector.
However, the Wall Street took another slump on Monday. The present situation on the market is the result of what is happening in the investors circles, which are currently worried about the rising cumulus of bad debt confronting financial institutions.

by Michaela Vargova for PocketNews (http://pocketnews.tv)

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