Saturday, July 12, 2008

Covered Bonds

As Fannie Mae and Freddie Mac continue to crater in value, most people we speak with don't seem to realize the consequences the country faces if either of these entities fail--the biggest being that the entire mortgage industry in the United States will be forced to dramatically change.

This "change" could be a system wide reduction in mortgages which would be a huge economic knockout punch.

On the other hand, there is the idea of "Covered Bonds". Many European countries use this approach and it works fairly well for operating a decent mortgage market.

Read a good primer about Covered Bonds, here.

Daily Sprawl expects that we will all start hearing more and more about this term soon. An educated person is often the best prepared one.