Europeans Suspend Selected Mortgage Securities Trading

by Peter G. Miller
November 23rd, 2007
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Bloomberg has reported that mortgage bond trading among banks has been suspended until Monday, Nov. 26th.

“The European Covered Bond Council, an industry group that represents securities firms and borrowers, recommended banks withdraw from trades for the first time in its three-year history until Nov. 26. Banks are still obliged to provide prices to investors, according to the statement today.

“Banks,” Bloomberg continued, “including Barclays Capital, HSBC Holdings Plc and UniCredit SpA took the step as investors shun bank debt on concern lenders face more mortgage-related losses than the $50 billion disclosed. Abbey National Plc, the U.K. lender owned by Banco Santander SA, became the third financial company to cancel a sale of covered bonds in a week as investors demanded banks pay the highest interest premiums on covered bonds in five years.”

Bloomberg explained that, “covered bonds are securities backed by mortgages or loans to public sector institutions. The notes offer more protection to bondholders than asset-backed debt because the issuing bank is liable for repayments. They typically have the highest credit ratings.”

Why is this important?

If European lenders can get into trouble with mortgage-backed securities the obvious concern is that the same thing could happen here. The result would be higher interest costs for all forms of mortgage financing, including FHA loans.

For the full story, see: Europe Suspends Mortgage Bond Trading Between Banks.

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