This relationship has continued to hold throughout the market turmoil, perhaps because of the comprehensive regulatory and statutory frameworks associated with covered bonds in most European countries. To date, not many covered bonds have been issued in the United States, for several reasons. First, the Federal Home Loan Banks (FHLB) can tap capital markets and provide cost-effective funding for mortgage assets.
In addition, as a source of financing, covered bond issuance today is not generally competitive with FHLB advances. Second, Fannie Mae and Freddie Mac have traditionally securitized U.S. prime mortgage assets. The GSEs' implicit government backing and their scale of securitization operations have made it difficult for banks to use covered bonds to finance their own prime mortgages.