A covered bond is a kind of halfway house between securitizing mortgages and simply holding them on bank balance sheets. With a covered bond, the bank gets the proceeds from selling the bonds now, while the investor gets the income from the mortgages. But unlike a mortgage-backed security, the bank doesn’t totally wash its hands of the mortgages if the borrowers default or get delinquent. For decades, the mortgage-backed security dominated mortgage finance in this country in part because these two companies reigned supreme with their taxpayer-subsidized cost of capital and their single-minded focus on securitization.
We’ll never know whether Americans would have embraced covered bonds the way
The WSJ says:
First, there are Fannie and Freddie’s political action committees, which have already distributed roughly $800,000 to U.S. House and Senate Members this election cycle. Fannie gave $10,000 to Speaker Nancy Pelosi, $10,000 to third-ranking House Democrat Rahm Emanuel, $5,000 to Barney Frank, $10,000 to Republican House whip Roy Blunt, $8,500 to Majority Leader Steny Hoyer and $7,500 to Minority Leader John Boehner and . . . you get the picture.
Freddie Mac’s foundation handed out $25 million to political groups, think tanks and other Beltway outfits in 2007 alone, more than any other foundation in the country, according to the Washington Business Journal. Guess which foundation ranked number two? Yep, Fannie Mae’s, which gave out $21 million. A decade ago Mr. Jackson accused Fannie and Freddie of discriminatory lending practices. Mr. DeMint has pledged to offer his amendment to end Fannie and Freddie lobbying to every Senate bill through Election Day. Consider it a Fannie and Freddie "thank you" for their bailout.
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