Can Covered Bonds Resuscitate Residential Mortgage Finance in the United States?

 
Author/Editor: Surti, Jay
 
Publication Date: December 01, 2010
 
Electronic Access: Free Full text (PDF file size is 1,367KB).
Use the free Adobe Acrobat Reader to view this PDF file

 
Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
 
Summary: This paper considers the case for mortgage covered bonds as an alternative to the originate-to-distribute mortgage funding model. It argues that the economic incentives provided to market participants under the covered bonds model are less susceptible to moral hazard even while retaining the key benefits of securitization such as capital market funding and flexibility in risk allocation. Notwithstanding these advantages, however, limited market size and the greater pro-cyclicality of mortgage loan quality in the United States - potentially reflecting borrower incentives under the personal bankruptcy framework - impose limits on the benefits ensuing from this model. The analysis underscores the need for a comprehensive legal-regulatory framework to underpin market development and discusses a number of ways in which the current draft legislation may be further strengthened. A potential strategy to hasten market development within the current institutional framework is identified.
 
Series: Working Paper No. 10/277
Subject(s): Bankruptcy | Bonds | Capital | Capital markets | Credit risk | Economic models | Financial institutions | Housing | Loans | Risk management | United States

Author's Keyword(s): Covered bonds | mortgage-backed securities | personal bankruptcy | United States.
 
English
Publication Date: December 01, 2010
Format: Paper
Stock No: WPIEA2010277 Pages: 50
Price:
US$18.00 (Academic Rate:
US$18.00 )
 
 
Please address any questions about this title to publications@imf.org