Co-published Covered bonds guide: US


swaps, which provided partial credit enhancement to the structure (as noted above), were one of a kind, off-market swaps that were quite expensive. In 2009, Congressman Garrett introduced


another bill on covered bonds, which was not acted on by Congress. In 2010, there was a failed attempt to add covered bond provisions to the Dodd-Frank Wall Street Reform and Consumer Protection Act. In 2011, Congressman Garrett introduced HR 940 in the House of Representatives. The bill was assigned to the Financial Services Committee and the Ways and Means Committee. After hearings on the bill, the Financial Services Committee approved the bill 44-7, a strong bi-partisan showing. The bill, however, was hung up in the Ways and Means Committee until late December 2012 and, accordingly, was never voted on by the full House of Representatives. In November 2011, s.1835 was introduced


in the Senate, co-sponsored by Senators Hagan (D-NC), Schumer (D-NY), Crapo (R-ID) and Corker (R-TN), and assigned to the Committee on Housing, Banking and Urban Affairs. No hearings were held on the bill and no further action was taken on the bill. In the spring of 2012, there was a failed effort in the Senate to add covered bond provisions to the Jobs Act. With the start of 2013, a new Congress


began. Any bills unfinished by the old Congress must be reintroduced in the new Congress if action is to be taken on them. To date, no covered bond bill has been introduced in the Senate or the House of Representatives. We are now in the sixth year of efforts to


enact a covered bond statute. And the legislative agenda is again crowded, this year with immigration reform, deficit spending limitations, tax reform, GSE wind down bills, telephone and internet surveillance hearings and a host of other matters. Perhaps it is time to try an alternative, to try to restart covered bond issuance by US banks in the absence of a statute. The housing market is clearly recovering


strongly and the need for private sector funding of residential mortgage loans is growing. Government-sponsored enterprises (GSEs) have funded approximately 95% of new mortgage loans since the crisis, but now efforts are emerging to address the losses in GSEs and reduce their role in financing new mortgage loans. There is legislation in the Senate to dissolve the GSEs and establish a new mortgage insurance corporation as an agency of the government. The securitisation of mortgage loans has


yet to recover in the United States. As a result of the enormous settlements for


www.iflr.com Author biographies


Anna Pinedo Morrison & Foerster


Anna Pinedo’s practice is focused on securities and derivatives. She represents issuers, investment banks and financial interme- diaries, and investors in financing transactions, including public offerings and private placements of equity and debt securities, as well as structured notes and other hybrid and structured products. Pinedo works closely with financial institutions to create and structure innovative financing techniques, including new


securities distribution methodologies and financial products. She has particular financing expertise in working with technology-based, telecommunications, and healthcare, companies, and with financial institutions, REITs and consumer finance companies. Pinedo has worked closely with foreign private issuers in their securities offerings in the US and in the Euro markets. She has also worked with financial institutions in connection with international offerings of equity and debt securities, equity- and credit-linked notes, and hybrid and structured products, as well as medium-term note and commercial paper programmes. She is the co-author of Covered Bonds Handbook, published by Practising Law Institute (2010).


Jerry Marlatt Morrison & Foerster


Jerry Marlatt represents issuers, underwriters and placement agents in public and private offerings of debt, covered bonds, surplus notes, securities of structured investment and specialised operating vehicles, and securities repackagings. Example transactions involve the first covered bond by a US financial institution, the first covered bond programme for a Canadian bank, surplus notes and common stock for a US monoline insurance company, eurobond offerings by US issuers


and securities offerings for a variety of structured vehicles, including CBOs, SIVs, CDOs, derivative product companies, ABCP conduits and credit-linked investments. Marlatt is co-author of Considerations for Foreign Banks Financing in the US, published by International Financial Law Review (2012), is a contributor to Covered Bonds Handbook, published by Practising Law Institute (2010) and a charter member of the United States Covered Bonds Council. He was named Dealmaker of the Year by The American Lawyer for his work as issuer’s counsel on the first covered bond deal ever registered with the Securities and Exchange Commission. Marlatt is recommended as a leading lawyer by Chambers USA 2013, Legal 500 US 2013 and IFLR1000 2013.


representation and warranty violations entered into by the banks that funded their origination of mortgage loans through FNMA or FHLMC or through private sector securitisation, banks are now trying to put specific time limits on their representation and warranty exposure, so far only with wary acceptance by investors. Perhaps it is worth trying to develop an alternative means for US banks to issue covered bonds. Covered bonds provide a more policy-friendly means of residential mortgage finance. Because mortgage loans remain on the bank’s books, the bank’s interests are better aligned with those of investors. The bank has an incentive to maintain strong underwriting standards and, for borrowers who get into difficulties, the bank retains the flexibility to assist borrowers


in working out loans because it continues to own the loans. From an investor’s perspective, covered bonds create additional confidence because they are dual recourse instruments, providing recourse both to the issuing bank and to a pool of collateral in the event of a bank failure or default. Finally, the issuance of covered bonds by financial institutions are subject to continued regulation and oversight by banking authorities. The structure used by Washington Mutual


and Bank of America for issuing covered bonds is still not usable, however, due to its expense and complexity. But perhaps it is worth attempting to obtain approval for issuing covered bonds under the structure used by Canadian and English banks prior to the passage of statutes in those countries and still used today under a statutory scheme.


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