US Covered Bonds

1 Who is the issuer?
  • Special Purpose Entities (SPE)
  Comments: Special Purpose Vehicle (SPV, for example in the from of a Delaware statutory trust).
2 Does the bondholder have recourse to the credit institution?
  • No
3 Who owns the cover assets?
  Comments: To secure its obligations under the mortgage bonds, a sponsor bank grants a first priority perfected security interest in the cover pool to a MBIT for the benefit of the mortgage bond investors. The SPV grants a first priority perfected security interest in the covered bond collateral to a CBIT for the benefit of the covered bond investors.
4 Is the issuer the originator of the assets?
  • No
1 Are the bonds governed by a special covered bond Legislation?
  • No
2 What is the legal framework for bankruptcy of the issuer of covered bonds?
1 What types of assets may be included in cover pools?
  • Exposures to public sector entities
  • Mortgage loans (Mortgage loans for the purpose of this question are taken to include guaranteed real-estate loans.)
  • Group originated Senior MBS
  • Senior MBS issued by third parties
  Comments: Residential mortgages and home equity lines of credit originated or acquired by the sponsor bank, debt issued or guaranteed by 0% risk-weighted public sector entities, exposures to 10% or 20% risk-weighted entities, cash and triple-A rated US$-denominated RMBS.

The existing covered bond programmes are tailor-made and do not yet meet the standards under the FDIC’s final Covered Bond Policy Statement and the US Treasury’s Best Practices for Residential Covered Bonds.
2 What is the geographical scope for public sector assets?
  • Domestic
  • Other
  Comments: The existing covered bond programmes are tailor-made and do not yet meet the standards under the FDIC’s final Covered Bond Policy Statement and the US Treasury’s Best Practices for Residential Covered Bonds.
3 What is the geographical scope for mortgage assets?
  • Domestic
  • Other
  Comments: The existing covered bond programmes are tailor-made and do not yet meet the standards under the FDIC’s final Covered Bond Policy Statement and the US Treasury’s Best Practices for Residential Covered Bonds.
4 Are regular covered bond specific disclosure requirements to the public mandatory?
  • No
  Comments: The FDIC’s final Covered Bond Policy Statement and the US Treasury’s Best Practices for Residential Covered Bonds require a sponsor bank / SPV to disclose some information. However, the existing covered bond programmes are tailor-made and do not yet meet the standards under the FDIC’s final Covered Bond Policy Statement and the US Treasury’s Best Practices for Residential Covered Bonds.
1 LTV is calculated using which valuation?[4]
  • Other
  Comments: In accordance with the respective programme terms, a mortgaged property’s value is the value given to the property by the sponsor bank adjusted for changes by the Federal Housing Finance Agency House Price Index.
2 Are there any special LTV limits used solely for calculating collateralisation rates for the cover pool (if yes, specify)?
  • Residential      
    75%
  Comments: The existing covered bond programmes are tailor-made and do not yet meet the standards under the FDIC’s final Covered Bond Policy Statement and the US Treasury’s Best Practices for Residential Covered Bonds.
3 Do bondholders get the benefit of that portion of the loan which exceeds the LTV cap?
4a Is there an LTV cap which makes the entire loan ineligible to be put in the cover pool (if yes, specify)?
  • No
  Comments: The existing covered bond programmes are tailor-made and do not yet meet the standards under the FDIC’s final Covered Bond Policy Statement and the US Treasury’s Best Practices for Residential Covered Bonds.
4b Is there an LTV cap which would require a loan to be removed from the cover pool?
  • No
  Comments: The existing covered bond programmes are tailor-made and do not yet meet the standards under the FDIC’s final Covered Bond Policy Statement and the US Treasury’s Best Practices for Residential Covered Bonds.
5 Is there any additional LTV limit on a portfolio basis?
  • No
Exposure to market risk
1 Is exposure to market risk (e.g. interest rate, currency risks) required to be mitigated by law or contract?
  • No
  Comments: A mismatch between the coupon on the mortgage bonds and the yield on its collateral is unhedged. A SPV enters into swap agreements with qualifying swap providers in order to address risks arising from interest and currency mismatches between the mortgage bond series and the related covered bond series, and risks related to timing discrepancies between the dates on which proceeds from the mortgage bond series are received by a SPV and the date on which interest and principal is payable on the covered bond series.
2 What is the primary method for the mitigation of market risk?
3 If the answer to the above question on market risk mitigation is “Use of derivative hedge instruments”, please specify whether those instruments are entered into:
4 What type of coverage test is applied?
  • Nominal cover
  Comments: Asset Coverage Test, Proceeds Compliance Test.
5 What is the frequency of coverage calculations?
  • Monthly
6 What types of stress scenarios are applied?
7 What is the frequency of stress test calculations?
Exposure to liquidity risk
8 Is exposure to liquidity risk required to be mitigated by law or contract?
9 What is the primary method for the mitigation of liquidity risk on interest payments?
10 What is the primary method for the mitigation of liquidity risk on principal payments?
11 Is there any grace period in case of a breach of liquidity risk mitigants?
12 What is the consequence of not fixing a breach of liquidity risk mitigants?
Monitoring of exposures to market and liquidity risk
13 Who monitors the maintenance of coverage tests?
  • Trustee/cover pool monitor
  Comments: Independent asset monitor.

The independent asset monitor has to test the arithmetic accuracy of the ACT calculations annually and, under certain circumstances, monthly.
14 Are there any regular public reporting requirements for market and liquidity risk?
Overcollateralisation
15 Is mandatory minimum overcollateralisation required?
  • By contractual obligation
  Comments: Yes, contractually committed overcollateralisation.
16 What is the level of minimum mandatory overcollateralisation?
  Comments: In accordance with the respective programme terms, the asset percentage is at least 96% for BA Covered Bond Issuer and 93% for WM Covered Bond Program and refers to a minimum OC of 4.2% and 7.5%, respectively.
17 If mandatory overcollateralisation is required, are the amounts above the minimum OC level protected?
18 Is there any grace period in case of a breach of the coverage test?
  • Length of period:
  Comments: If the ACT is failed, a sponsor bank has to add further collateral to the cover pool to ensure that the ACT is passed again at the next determination date.
19 What is the consequence of not fixing a breach of the coverage test?
  • Event of default of the issuer
  Comments: Consecutive failure of the ACT triggers a Sponsor Bank Event of Default. A failure of the PCT constitutes an SPV Event of Default.
1 Is a special license required for the issuing of covered bonds?
  • No
  Comments:
2 Are there special reporting duties of the covered bond issuer to the supervision authority concerning covered bonds and the cover pool, which go beyond the regular banking supervision?
3 What is the role of the banking supervision regarding covered bonds?
4 Is there a special role of banking supervision in crisis regarding covered bonds?
5 Is there a cover pool monitor independent from the issuer?
  • Yes
6 If there is an independent cover pool monitor, what are its duties?
  • Verification of coverage tests
  Comments: The independent asset monitor has to verify the arithmetic accuracy of the ACT calculations yearly. If a sponsor bank were downgraded to or below a minimum level, the asset monitor would have to verify the ACT calculation monthly until the necessary credit ratings have been reinstated.
1 Do covered bonds automatically accelerate when the credit institution goes insolvent?
  • No
2 What is the cover pool?
  Comments: To secure its obligations under the mortgage bonds, a sponsor bank grants a first priority perfected security interest in the cover pool to a MBIT for the benefit of the mortgage bond investors. The SPV grants a first priority perfected security interest in the covered bond collateral to a CBIT for the benefit of the covered bond investors.
3 How are the covered bondholders protected against claims from other creditors in case of insolvency of the issuer?
  Comments: To secure its obligations under the mortgage bonds, a sponsor bank grants a first priority perfected security interest in the cover pool to a MBIT for the benefit of the mortgage bond investors. The SPV grants a first priority perfected security interest in the covered bond collateral to a CBIT for the benefit of the covered bond investors.
4 Is there recourse to the credit institution’s insolvency estate upon a cover pool default?
  • No recourse
5 Are there provisions that require derivatives to continue in case of insolvency of the credit institution?
6 If derivatives are permitted in the cover pool, what is their ranking?
1 Does the covered bond fulfil the criteria of UCITS 52(4)?
  • No
2 For further information regarding the compliance to the criteria of Article 129 of the Capital Requirements Regulation (CRR), please see the following links: http://ecbc.hypo.org/Content/default.asp?PageID=504#position https://www.coveredbondlabel.com
3 Are listed covered bonds eligible in repo transactions with the national central bank?
  • Yes
4 Are there any special investment regulations regarding covered bonds?
1 Link to National Association representing covered bond interests
  • Association
2 Link to national regulators and supervisors
3 Fact Book Country Chapter
  • Chapter
 
4 Hypostat Country Chapter
  • Chapter