WASHINGTON — The Bush administration and federal banking regulators joined with the nation’s four largest banks Monday to endorse a new way to pump money into the battered U.S. mortgage market.
Treasury Secretary Henry Paulson unveiled a set of best practices designed to encourage banks to issue a debt instrument known as a covered bond.
The administration hopes these bonds will replace some of the mortgage financing that has disappeared as investors have incurred billions of dollars of losses on mortgage-backed securities.
“As we are all aware, the availability of affordable mortgage financing is essential to turning the corner on the current housing correction,” Paulson said in launching the new effort. “We are at the early stages of what should be a promising path, where the nascent U.S. covered-bond market can grow and provide a new source of mortgage financing.”
Paulson was joined at the news conference by officials from the Federal Reserve, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the Office of Thrift Supervision. All the agencies said they endorsed the new set of best practices compiled by Treasury.
Officials from banking giants Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co. issued a joint statement saying, “We look forward to being leading issuers as the U.S. covered bond market develops.”
Private analysts said the new initiative could help stabilize the U.S. mortgage market, but they did not view the effort as a cure-all for all the problems facing the financial sector at the moment.
