The market has been regulated since the creation of a law governing the securities in Germany in 1900. The key difference between covered bonds and mortgage-backed or asset-backed securities is that banks that make loans and package them into covered bonds keep those loans on their books. This means that when a company with mortgage assets on its books issues the covered bond, its balance sheet grows, which would not occur if it issued an MBS, although it may still guarantee the securities payments. Uses There are many reasons for mortgage originators to finance their activities by issuing mortgage-backed securities. Mortgage-backed securities: transform relatively illiquid, individual financial assets into liquid and tradable capital market instruments allow mortgage originators to replenish their funds, which can then be used for additional origination activities can be used by Wall Street banks to monetize the credit spread between the origination of an underlying mortgage (private market transaction) and the yield demanded by bond investors through bond issuance (typically a public market transaction) are often a more efficient and lower-cost source of financing in comparison with other bank and capital markets financing alternatives. allow issuers to diversify their financing sources by offering alternatives to more traditional forms of debt and equity financing allow issuers to remove assets from their balance sheet, which can help to improve various financial ratios, utilize capital more efficiently, and achieve compliance with risk-based capital standards The high liquidity of most mortgage-backed securities means that an investor wishing to take a position need not deal with the difficulties of theoretical pricing described below; the price of any bond is essentially quoted at fair value, with a very narrow bid/offer spread. Reasons (other than investment or speculation) for entering the market include the desire to hedge against a drop in prepayment rates (a critical business risk for any company specializing in refinancing). Market size and liquidity As of the second quarter of 2011, there was about $13.7 trillion in total outstanding US mortgage debt. There were about $8.5 trillion in total US mortgage-related securities. About $7 trillion of that was securitized or guaranteed by government-sponsored enterprises or government agencies, the remaining $1.5 trillion being pooled by private mortgage conduits. According to the Bond Market Association, gross US issuance of agency MBS was (see also above): 2005: USD 0.967 trillion 2004: USD 1.019 trillion 2003: USD 2.131 trillion 2002: USD 1.444 trillion 2001: