It is no mystery that the real estate market in the United States is quickly sliding downhill. While the celebrated television financial media are swift to declare that “the worst is behind us” after each unfavorable news story on the subject, the documentation suggests that the end of the line is nowhere in sight. Prices of real estate continue to fall, foreclosures continue to rise, it remains exceedingly arduous to get approved for a first time home buyers loan, and the secondary mortgage market continues to hobble along in a terminal state, just scarcely alive.

Amidst all this doom and gloom, the U.S. Treasury Department is providing a flicker of hope by actively promoting the issuance of a new form of debt known as a "covered bond" to raise funds for home mortgage lending. The Treasury Department cannot declare credit for inventing the policy, as they are the number one provenance of mortgage-loan financing for European lenders.

Covered bonds are a type of mortgage-backed security, but they're very separate from the derivative-laced speculative packages that fueled the real estate boom that reached its peak in 2006. It was the inclusion of extremely risky derivatives in those packaged mortgage securities that landed many Wall Street banks in this misfortune. They were absolutely unregulated (and still are). These dreadfully speculative “investments” were off the balance sheets of financial institutions and were almost always deliberately opaque. Investors had not only the claim to the mortgage payments but also the double risk of defaults and derivative failure, which have been revealedto be overbearing.

On the other hand, covered bonds are currently viewed as safer investments because they're not packaged and sold to a third party but reside on a bank's balance sheet and the person or institution who invests in the bonds gets protection in not one, but two ways. First, the bonds are protected by a "cover pool" of high-quality mortgages that have to meet certain financial and regulatory, one of which is being in good standing. If the mortgages go bad, the bank must step in to guarantee bond holders get their interest.

Banks like the notion because it provides a persevering and reliable origin of funding for making mortgages. The superior quality of the underlying loans translates into high credit ratings, which can result in lower interest expense to borrowers.

Banks seeking cash to lend to homebuyers also have the established formula -- garnering deposits from consumers. This method remains an essential source of financing for mortgages, but deposits can be expensive to draw and less reliable than bonds sold to major institutional investors.

Until mid 2007, lenders had insignificant trouble obtaining the proceeds to make loans. Lenders could handily bundle mortgages into various forms of securities, auction them and employ the proceeds to write additional loans.

At present, however, investors have become nervous by rising defaults and the incapacity to market structured financial instruments that involve shady derivatives and have absolutely lost trust in mortgage-backed securities issued by Wall Street trading houses. The sole mortgage products that investors are willing to place funds in are those guaranteed by government-sponsored entities like Fannie Mae, Freddie Mac and the Federal Housing Administration.

U.S. TreasurySecretary Henry Paulson and additional policy regulators see covered bonds as a means to supply a fresh wellspring of financing for the housing market. The application is being championed by Mr. Paulson, Federal Reserve Chairman Ben Bernanke, Federal Deposit Insurance Corp. Chairwoman Sheila Bair and additional financial regulators, who are mindful that the decrepit housing market will continue to drag the economy downward.

The Treasury Department is anticipated to release a document to furnish regulatory clarity within the upcoming couple of months. An additional hurdle in the U.S. has been legal cloudiness about the rights of investors if a bank goes under. Under current rules, the FDIC has 90 days in the case of a bank failure to reimburse funds for the covered bonds. The provision helps the FDIC decrease the cost of dissolving a bank but at the same time creates a set back for investors as well injecting a level of uncertainty. The FDIC has come out and proposed a new regulation shrinking the time span to ten days. A final regulation could be forthcoming as quickly as this summer. This is no period to be procrastinating. The mortgage and housing markets need all the assistance they can get.