The Department of
the Treasury and the Federal Reserve Board today announced the launch of the Term
Asset-Backed Securities Loan Facility (TALF), a component of the Consumer and
Business Lending Initiative (CBLI). But although the TALF has the potential to
generate up to $1 trillion of lending for businesses and households, one
association said it doesn’t go far enough.
While the TALF is
intended to revive the ABS markets by generating funding for creditors, the
American Financial Services Association said its restrictions will prevent many
auto finance companies from participating in the program.
“In particular,
AFSA believes the TALF program must be expanded to permit eligibility for
securities beyond those with an AAA rating,” said Chris Stinebert, president
and CEO of the AFSA. “Without additional changes, lenders will continue to face
funding challenges – and many potential borrowers may still find themselves
unable to buy a car.”
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). However, the AFSA said the TALF needs to be expanded to
address floorplan financing.
“Of particular
concern is the effect on floorplan financing,” Stinebert said. “Without an
expansion of TALF’s eligibility requirements, 50 percent of floorplan ABS will
be shut out of the program, creating a domino effect that will impact all
lenders and dealers.”
Under today's
announcement, 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 SBA-guaranteed
small business loans.
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, 2009. On March 25, 2009, 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 2009 or longer if the Federal Reserve
Board chooses to extend the facility.
Today the Board
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 Small Business Administration or backed by
government-guaranteed student loans.
The modifications
are warranted by the minimal credit risk on these assets owing to the
government guarantees, and, by making the terms of the TALF loans more
attractive, they should encourage greater flows of credit to small businesses
and students.
The Federal
Reserve and Treasury currently anticipate that ABS backed by rental,
commercial, and government vehicle fleet leases, and ABS backed by small ticket
equipment, heavy equipment, and agricultural equipment loans and leases will be
eligible for the April funding of the TALF.
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. As is the case
for the current categories of newly originated loans, the TALF will combine
public financing with private capital to encourage the private securitization
of loans in the asset classes eligible in the expanded program.
Additional details
of the TALF and the CBLI can be found at www.FinancialStability.gov.
Further information on the Federal Reserve's credit and liquidity programs is
available at
www.federalreserve.gov/monetarypolicy/bst.htm. The Treasury Department also
released a new white paper outlining efforts to unlock credit markets.
