Joey's Blog » asset-backed securities

TALF Program Update – $6.54 Billion in Loans

joey — Fri, 04 Sep 2009 13:32:51 +0000

Investors applied for a total of $6.5 billion in loans from the Federal Reserve through their Term Asset-Backed Securities Loan Facility (TALF) emergency lending program. The TALF program provides low interest loans to investors for purchasing securities backed by auto, credit card and other types of consumer loans. This round, purchases include $4.4 billion in credit-card backed loans and $1.16 billion in auto loans.

Around $14.7 billion in eligible asset-backed securities were sold by American Express, Bank of America, General Electric, Nissan, Ford, and GMAC Inc.’s Ally Bank this round.

In August, $6.9 billion was borrowed and $5.4 billion was borrowed in July by Investors through the TALF program.

The TALF program essential subsidizes investor’s purchases of these assets through artificially low interest rates and non-resource structure, Fed takes bulk of the loss if loan goes bad.

CNNMoney.com – Investors Apply for $6.5 Billion in Loans – http://joeyconway.com/xn5sf9

Reuters – Investors Requested $6.4 bln under Fed – http://joeyconway.com/yaxvzs

Financial Times – Fed lends $6.5bn for securities buys – http://joeyconway.com/tmyrvr

AP – Banks borrow more from emergency Fed loan program – http://joeyconway.com/9qqeh5

Federal Reserve TALF Program Extended

joey — Tue, 18 Aug 2009 15:54:38 +0000

The Federal Reserve announced on Aug 17th it would extend the emergency rescue loan program, Term Asset-Backed Securities Loan Facility (TALF) with capacity of up to $1 trillion, by another 3 to 6 months. The Fed and Treasury justify this extension of the program deadlines by saying the ABS and CMBS markets “are still impaired and seem likely to remain so for some time.” There is a definition and breakdown of the purpose and effects this TALF program has on the markets in an earlier article.

There are two parts to TALF. One provides loans for market participants to purchase newly issued commercial mortgage-backed securities (CMBS) and the other provides loans for other asset-backed securities (ABS) and CMBS issued before Jan 1^st 2009. The portion of the program covering newly issued CMBS was extended from Dec 31^st to June 30^th while the portion covering other ABS and older CMBS was extended from Dec 31^st to March 31^st.

The Fed originally started TALF with a capacity of $200 billion and was backed by $20 billion from Treasury’s Troubled Asset Relief Program (TARP). They later announced it could expand to a capacity of $1 trillion. The commercial real-estate industry and 41 House members including Barney Frank have requested the Fed extends the program deadline until December 2010.

Even though the capital markets are improving and recovery is slowly bur surely taking place, the Federal Reserve is going to continue helping consumer lenders with tax and printed money. The Federal Reserve has now extended the TALF program which will continue providing cheap government financing to investors until the Fed decides otherwise.

Bloomberg – Fed Extends TALF Program for Commercial Real Estate: http://joeyconway.com/978hsh

TALF – Definition and Explanation

joey — Thu, 06 Aug 2009 19:49:58 +0000

Term Asset-Backed Securities Loan Facility – Definition and Explanation

“The Federal Reserve created the Term Asset-Backed Securities Loan Facility (TALF), to help market participants meet the credit needs of households and small businesses by supporting the issuance of asset-backed securities (ABS) collateralized by auto loans, student loans, credit card loans, equipment loans, floorplan loans, insurance premium finance loans, loans guaranteed by the Small Business Administration, residential mortgage servicing advances or commercial mortgage loans,” – The Federal Reserve

Essentially, the Fed is stating, market participants, without this government program, would not be able to meet the credit needs of households and small businesses. In simple economic terms, the demand for credit from households and small businesses would not be met with a sufficient supply of credit from market participants.

There are many different ways to approach this situation. This should be the most straight forward and simple explanation. Market participants, who are businesses required to turn a profit or they will go bankrupt, will supply credit to these households and small businesses until it becomes too risky resulting in unprofitable loans. If there is not a sufficient supply of credit in the market, it most likely means supplying credit is not profitable or the risk outweighs the return. The main risk facing the market participants is that the households and small businesses will default on their credit and the market participants will not make a profit, potentially going bankrupt.

Through this Loan Facility, the Federal Reserve has taken on the role of subsidizing market participants, banks and large investors, thus eliminating some of the downside risk that households and small businesses will default. Since some of the downside risk has been mitigated by the Fed, the market participants are now in turn willing to supply more credit, make more loans. The downside risk of potential default by households and small businesses has been transferred from the balance sheet of banks and investors to the Federal Reserve’s balance sheet which is funded through our tax dollars and the Fed’s ability to print dollars.

CNN Money – Breakdown of TALF Program: To TALF or not to TALF http://joeyconway.com/663n2a

Federal Reserve Definition TALF – http://joeyconway.com/mn5zbc

Federal Reserve TALF F.A.Q. (34 pgs) – http://joeyconway.com/ehnrkp