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Fed and Treasury Extend TALF

Yesterday, the Federal Reserve Board and the Treasury Department announced that they will extend the the Term Asset-Backed Securities Loan Facility (TALF) through March 31, 2010 for newly issued asset-backed securities (ABS) and legacy commercial mortgage-backed securities (CMBS), and newly issued CMBS through June 30, 2010. Previously, loans through the TALF had been set to expire on December 31, 2009.

As we reported in our March 17, 2009 post, "Details of the Term Asset-Backed Securities Loan Facility,"


The TALF is not part of the Troubled Asset Relief Program, but a joint public-private investment program dramatically expanded under Treasury's recently announced Financial Stability Plan. The TALF was expanded by Treasury and the Federal Reserve Bank to create incentives for market participants such as hedge funds and other investment companies to return to the securitization market, thereby unfreezing that market and allowing banks to resume functioning within it. The Financial Stability Plan calls for the expansion of the TALF facility up to $1 trillion for permitted investments, and TALF may be further expanded to include commercial mortgage-backed securities, private-label residential mortgage-backed securities, and other asset-backed securities

Though financial market conditions have improved in the past few months, according to the Fed and Treasury, "the markets for asset-backed securities (ABS) backed by consumer and business loans and for commercial mortgage-backed securities (CMBS) are still impaired and seem likely to remain so for some time." Consequently, the Fed and Treasury are extending TALF loans; however at the present time, they will not be making any further additions to the types of collateral that are eligible for the facility:
After having conducted a thorough analysis of a number of potential candidates, the Federal Reserve and Treasury announced on Monday that they are holding in abeyance any further expansion in the types of collateral eligible for the TALF. The securities already eligible for collateralizing TALF loans include the major types of newly issued, triple-A-rated ABS backed by loans to consumers and businesses, and newly issued and legacy triple-A-rated CMBS. The Federal Reserve and Treasury are prepared to reconsider their decision if financial or economic developments indicate that providing TALF financing for investors' acquisitions of additional types of securities is warranted.

The text of the Fed and Treasury announcement of the TALF extension is available at: http://www.treas.gov/press/releases/tg264.htm

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