Paulson's new plan - "covered bonds"

[Financially Feasible]

http://money.cnn.com/2008/07/28/news/covered.bonds.fortune/index.htm?postversion=2008072815

Now... someone explain this concept to me as I wasn't able to learn much (from a conceptual basis) about this idea. How exactly is this supposed to help us and to help the availability of mortgage financing? To me, this sounds like a new name for securitization of mortgages. What makes covered bonds any better than CMOs or other mortgage debt instruments? Isn't this like jumping from the frying pan and into the fire? :new_ukliam2:

 

[Mike Boyd]

Conversion of mortgages to "bonds" is how fanny, freddie and ginnie make their profits.

 

[Riick]

"Bonds" backed by mortgages or "Securities" backed by mortgages.

"A Rose, by any other name, would smell as sweet"

... except we're talking about stuff which just "smells"

 

[Mark to market]

In case a bank fails this gives creditors rights to specific collateral instead of splitting what may or may not be left in the pool.

 

[rcsone]

......If it happens, hopefully this will increase lenders' interest in quality of the appraisal works due to their "exposure" in liability of loan/collateral relations........now they can just keep their fees, service amounts and pass the ultimate monetary non-payment to the GSE's, CDO's, etc. which has promulgated the current "rob, rape, and profit" scene . . . . . . I would take their capital first to apply on their now "bad deals", then work on saving the orderly mortgage game under new rules where the players can win and lose......I would also take their coming refunds of income taxes paid on prior periods of "profitable" business which will be applied for under income averaging schemes........doesn't BofA state this covers their exposure from CW's purchase?.......great deal for US taxpayers!!!!-----tax refunds for the criminals' organizations and losses charged to the taxpayers', pockets thru paper passages................ best to all............rs

 

[Terrel L. Shields]

What else would you expect from Paulson?

Paulson was Staff Assistant to the assistant Sec'y of Defense in the early 70's. He then worked for Richard Nixon, as assistant to John Ehrlichman from 1972 to 1973.

He joined Goldman Sachs in 1974, before serving as its Chairman and Chief Executive Officer.

Is he looking out for us? or Wall Street? Inquiring minds want to know...

 

[rcsone]

.......it took chefs from all locales to prepare this "pot"........theft by position and through process........the only thing you hafta know about economics is "the biggest prince is the biggest thief"..........rs

 

[Scott Kibler]

Mortgages backing a covered bond stay on the bank's books; a big difference requiring the bank to pay more attention to the quality of said mortgages.

 

[Financially Feasible]

Mortgages backing a covered bond stay on the bank's books; a big difference requiring the bank to pay more attention to the quality of said mortgages.

That was the simplest, yet the most concise, answer that I could have hoped for. If that's the case... then I'm all for it... as, IMNSHO, this would mean that banks would actually want a GOOD and THOROUGH opinion of value.

 

[Mark to market]

The WSJ has an editorial today on the covered bonds which are popular in Europe.

" as with all things mortgage related these days, the giant twin elephants in the covered -bond room are named Fannie and Freddie. For decades the mortgage backed security dominated mortgage finance in this country in part because these two companies reigned supreme with their taxpayer-subsidized focus on securitization.

We'll never know whether Americans would have embraced covered bonds the way Europe has if Fann and Freddie weren't offering a competing and government subsidized product. But going forward any new product will have to compete against them for as long a they retain their privileged position. Their position casts a pall over an new innovation in the market for mortgages finance. It's too bad Mr. Paulson didn't mention that n his press conference.

The sooner Fan and Fred get out of the way, the sooner the market can tell us whether covered bonds or some other new product, will be a useful way forward in our capital markets."