Recently, the Government introduced legislative draft for Korea Covered Bond Act of 2013 to the National Assembly on February 5, 2013. This aims at continuous financial stability that qualified bank can easily raise money through issuing covered bond even though financial crisis. In other words, this will enable credit to flow more readily from the capital markets to households, small business, and the Government in a way that enhances the stability of th broader financial system. In Korea, households debt is threatening financial stability. Especially, residential mortgage loan, which covers more than 50% of households debt, is severe and serious in terms of its sizable increase and structural risks. Short-term, variable, nonamortizing(straight) mortgages are representing 90% shares of all residential loans. This structure are very vulnerable to external variability. Therefore we should try to convert current mortgage structure into long-term,fixed-rate, amortizing structure. For extended loan structure, legislation of covered bond act is imperative. Korean banks and loan credit companies are mainly raising fund from short-term market. By raising long-term fund through covered bond, credit institutions are enable to serve long-term mortgage loan. There are several legislative and policy issues regarding this bill. The core elements of the legislative framework are legal certainty for covered bond programs and public supervision by financial authorities. The legal status of covered bond is established by specifying the catagories of eligible issuers and eligible cover-pool assets, mandating an asset coverage test for cover pools and audits by an independent asset monitor, and clarifying applicable securities. Most important, since covered bonds are distinguished from other pool forms of secured debt by a mechanism for managing (rather than liquidating) the cover pool upon the issuer’s default or insolvency and continuing scheduled (rather than accelerated) payments,the framework created a separate resolution process for covered bond programs. Here, covered bond is similar to secured bond, which current “the Secured Bond Trust Act” regulates and its mechanism is restricted to trust scheme. In order to steer an issuance of covered bond, legislative draft needs to be modified and added some clauses. To change mortgage loan maturity into longer term, eligible asset test needs to include DTI ratio and KDIC(Korea Deposit Insurance Corporation)’s control right to covered assets upon the issuer’s default or insolvency. Furthermore, mortgage debtor’right or protection should be taken into consideration.