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Finding relief for the housing industry could arrive from copying a popular European financing method.


The Federal Government is studying closely a policy called covered bonds, popular in Euorope to help the mortgage lending industry..

If you are wondering how the housing market is finally going to recover like millions of home owners who have seen their home equity disappear over the past two years, the first area that needs to be addressed is mortgage lending. The challenge is that most lenders have tightened their lending guidelines following the rapid rise in foreclosures that it is depressing the number of potential buyers who could be out purchasing homes. This restriction is causing further erosion of home prices as the supply versus demand market stays out of sync. The government is now looking at a popular financing method that has been sucessfully implemented in Europe called the covered bond. This method of financing would allow for a more transparent method for investors and shareholders to measure mortgage bonds and their performance. The major reason for this is that these type of mortgage bonds are required to be held against a lenders balance sheet and provide further insulation for investors as they are backed by the bond holder and bank to provide more insulation against rapid price deterioration. The mortgage industry has been very limited in offering loans that are not being sold to Fannie Mae, Freddie Mac or the FHA. Without a seocndary market that buys and funds alternative loan programs their is little chance the U.S. housing market will recover in the near future.

6-17-2008 ? LoanNetwork.com





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