Covered bonds seen as a piece of credit puzzle

08/7/2008 | Bloomberg

U.S. Treasury Secretary Henry Paulson's plan to allow banks to sell bonds backed by top-rated mortgages is expected to be a small help in making credit flow again. "Even the banks people are not concerned," former FDIC Chairman William Isaac said. Covered bonds get higher ratings and pay less in interest because they back the issuer's repayment promise with assets that can be sold in a default. Banks would "cover" these bonds with mortgages made to homeowners who provide down payments of 20% and are current on their loans.

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