INSTANT VIEW: U.S. kick-starts covered bond market

NEW YORK (Reuters) - U.S. Treasury Secretary Henry Paulson said the nation's four biggest banks were ready to kick-start a market for covered bonds that could help significantly expand home mortgage financing.

KEY POINTS: * "I believe covered bonds have the potential to increase mortgage financing, improve underwriting standards and strengthen U.S. financial institutions by providing a new funding source," Paulson said at a press conference on Monday. * Covered bonds, issued by banks and secured by pools of assets like home loans, are widely used in Europe but have only become attractive in the United States since the segment of the mortgage securitization market driven by investment banks dried up last year amid a wave of foreclosures. * The Treasury Department issued a set of so-called "best practices" for financial institutions that issue covered bonds. The Federal Deposit Insurance Corp. has also offered guidance specifying how investors would get their collateral if an issuing bank fails.

COMMENTS:

DERRICK WULF, PORTFOLIO MANAGER, DWIGHT ASSET MANAGEMENT, BURLINGTON, VERMONT:

"On the surface, I just don't see what's new with this. It's not that different from the outright securitization market. If you don't like the assets in a securitization, why would you like them in a covered bond?"

"Investors tend to view plans from the Treasury with some skepticism. Remember MLEC?... They tend to be short on specifics."

"Quite frankly, I'm not sure the covered bond market will solve problems that cannot be addressed by other mechanisms."

"People are concerned that assets on bank balance sheets are of poor quality. I actually think banks are pretty well capitalized. I don't think they need the covered bond market."

ARTHUR FRANK, DIRECTOR AND HEAD OF MBS RESEARCH, DEUTSCHE BANK SECURITIES, NEW YORK:

"It already exists in Europe and will probably require Congressional legislation to take off from here, but this may be the beginning of something. It could act as an alternative to non-agency MBS by offering a slightly better interest rate. It could also be competition for the Federal Home Loan Banks."

KURT BRUNNER, PORTFOLIO MANAGER, SWARTHMORE GROUP, PHILADELPHIA:

"My take on it is that it's another instrument or tool that the government is trying to develop in order to really just put a more solid foundation into the housing market.

"This isn't the major fix, but its another opportunity to stabilize this housing market. It will take time.

"They're trying to make things a little more transparent versus some of the opaque stuff you had in here before. This isn't the last tool there will be, I'm sure."

MICHAEL YOUNGBLOOD, PORTFOLIO MANAGER, FIVE BRIDGES CAPITAL LLC, WASHINGTON:

"This is nothing more than moral exercitation taking place. It's overdue for financial institutions to utilize covered bonds more fully. But they are only useful for depository institutions that hold large holdings of mortgages on their books."

"One additional force that could ignite the covered bond market is FASB disqualifying QSPE (Qualified Special Purpose Entity.) It would sharply entice further development in accounting rules for covered bonds."

"Absent of changing (lowering) the capital requirement on covered bonds, which would put them on the same footing as agency mortgage-backed securities, this is like exercising on a stationary bike."