The Department of the Treasury and the Federal Reserve Board have formally launched the Term Asset-Backed Securities Loan Facility (TALF), a component of the Consumer and Business Lending Initiative.
The TALF is designed to catalyze the securitization markets by providing financing to investors to support their purchases of certain AAA-rated asset-backed securities (ABS). By reopening these markets, the government agencies say TALF will assist lenders in meeting the borrowing needs of consumers and small businesses, helping to stimulate the broader economy.
With TALF's official launch, the Federal Reserve Bank of New York will lend up to $200 billion to eligible owners of certain AAA-rated ABS backed by newly and recently originated auto loans, credit card loans, student loans and Small Business Administration (SBA)-guaranteed small-business loans.
In early February, the Fed and the Treasury announced an expansion of TALF to include new asset categories that could generate up to $1 trillion in new lending. Teams from the Treasury Department and Federal Reserve are analyzing the appropriate terms and conditions for accepting commercial mortgage-backed securities (CMBS) and are evaluating a number of other types of AAA-rated newly issued ABS for possible acceptance under the expanded program.
The expanded program will remain focused on securities that will have the greatest macroeconomic impact and can most efficiently be added to the TALF at a low and manageable risk to the government, the agencies add.
Other types of securities under consideration include private-label residential mortgage-backed securities, collateralized loan and debt obligations and other ABS not included in the initial rollout such as ABS backed by non-auto floorplan loans and ABS backed by mortgage-servicer advances.
Issuers and investors in the private sector are expected to begin arranging and marketing new securitizations of recently generated loans, and subscriptions for funding in March will be accepted on March 17. On March 25, those new securitizations will be funded by the program, creating new lending capacity for additional future loans.
The program will hold monthly fundings through December or longer if the Federal Reserve Board chooses to extend the facility.
The Federal Reserve Board has also released revised terms and conditions for the facility and a revised set of frequently asked questions. The revisions include a reduction in the interest rates and collateral haircuts for loans secured by asset-backed securities guaranteed by the SBA or backed by government-guaranteed student loans.
The updated FAQ can be accessed on the Federal Reserve's home page.
SOURCES: Federal Reserve, Treasury