[Updates status of amendment]
Lawmakers attempted to move a regulatory framework for covered bonds took another step forward this week, though not a conventional one.
Sens. Bob Corker, R-Tenn., and Kay Hagan, D-N.C., filed S. 1835 the U.S. Covered Bond Act as an amendment to the Senate version of the Jumpstart Our Business Startups Act, which passed the House last week.
Senate Majority Leader Harry Reid, D-Nev., used a procedural maneuver to block amendments, however.
The JOBS Act contains a series of bills that strip out regulations and allow smaller businesses to go public sooner and access capital more easily.
Securities and Exchange Commission Chairwoman Mary Schapiro sent a letter to Senate leaders this week, however, alerting them to the potential for widespread fraud if certain rules are removed.
Still, the JOBS Act is receiving wide, bipartisan support in the Senate and from the Obama administration. The covered bond idea has been widely supported as well.
Hagan and Corker introduced their amendment as a separate bill in November. It establishes regulations and oversight for a U.S. covered bond market to pool residential and commercial mortgages into debt securities.
Issuers of covered bonds are on the hook against losses. Payment to investors is via swap agreements, and they are meant to cover the scheduled payments should the issuer become insolvent or if there is a discrepancy in timing, where the interest being paid on the loans does not align with payments due to investors.
Nonetheless, regulatory insurers of the institutions themselves are concerned about recourse to assets in the case the issuer fails.
A House committee passed the original covered bonds bill from Reps. Scott Garrett, R-N.J., and Carolyn Maloney, D-N.Y., but certain tax provisions are still being hammered out.
“We strongly urged the covered bonds amendment,” said a spokesman for Garrett’s office. “Whatever it takes.”