Fed announces the formation of Term Asset-Backed Securities Loan Facility MortgagePress.comFederal Reserve Board, Term Asset-Backed Securities Loan Facility, asset-backed securities, TALF
The Federal Reserve Board has announced the creation of the Term
Asset-Backed Securities Loan Facility (TALF), a facility that will
help market participants meet the credit needs of households and
small businesses by supporting the issuance of asset-backed
securities (ABS) collateralized by student loans, auto loans,
credit card loans, and loans guaranteed by the Small Business
Administration (SBA).
Under the TALF, the Federal Reserve Bank of New York (FRBNY)
will lend up to $200 billion on a non-recourse basis to holders of
certain AAA-rated ABS backed by newly and recently originated
consumer and small business loans. The FRBNY will lend an amount
equal to the market value of the ABS less a haircut and will be
secured at all times by the ABS. The U.S. Treasury
Department--under the Troubled Assets Relief Program (TARP) of the
Emergency Economic Stabilization Act of 2008--will provide $20
billion of credit protection to the FRBNY in connection with the
TALF. The attached terms and conditions document describes the
basic terms and operational details of the facility. The terms and
conditions are subject to change based on discussions with market
participants in the coming weeks.
New issuance of ABS declined precipitously in September and came
to a halt in October. At the same time, interest rate spreads on
AAA-rated tranches of ABS soared to levels well outside the range
of historical experience, reflecting unusually high risk premiums.
The ABS markets historically have funded a substantial share of
consumer credit and SBA-guaranteed small business loans. Continued
disruption of these markets could significantly limit the
availability of credit to households and small businesses and
thereby contribute to further weakening of U.S. economic activity.
The TALF is designed to increase credit availability and support
economic activity by facilitating renewed issuance of consumer and
small business ABS at more normal interest rate spreads.
For a list of the TALF Terms and Conditions, click
here.
For more information, visit www.federalreserve.gov.
