REFILE-UPDATE 1-U.S. Treasury to issue guidance on covered bonds

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WASHINGTON, July 28 (Reuters) - The U.S. Treasury said on Monday it will issue guidance for the development of the covered bond market in the United States as an alternative model for financing home mortgages.

U.S. Treasury Secretary Henry Paulson will join Federal Reserve Governor Kevin Warsh and officials from other financial regulators and major banks to discuss the guidelines at 2:30 p.m. EDT (1830 GMT) in Washington.

Covered bonds are a financing tool used by European banks among others that Paulson and other regulators say could restore confidence in the hobbled American mortgage finance system.

The guaranteed bonds are issued by financial institutions against pools of assets such as home loans that they hold on their books, in contrast to the current mortgage securitization model that passes all risk to investors.

Sources familiar with the guidance told Reuters last week that executives of Citibank (C.N: Quote, Profile, Research, Stock Buzz), Bank of America (BAC.N: Quote, Profile, Research, Stock Buzz) and Washington Mutual (WM.N: Quote, Profile, Research, Stock Buzz) would join Paulson and unveil plans to launch major covered bond issuance programs.

The Federal Deposit Insurance Corp recently issued a ruling that will give investors quicker access to collateral underlying the bonds if a bank issuing covered bonds were to fail, a move seen as improving investor confidence in such instruments.

The Treasury doccument is expected to provide details on transparencey for covered bonds, disclosures to investors and external audit requirements, according to banking sector officials. (Reporting by David Lawder; Editing by Theodore d'Afflisio)