On November 25, 2008, the Federal Reserve (Fed) and the U.S. Treasury (Treasury) announced two new programs intended to increase the availability of credit for consumers and home buyers.

Asset-Backed Securities Loan Facility

The Treasury and the Fed announced the creation of a Term Asset-Backed Securities Loan Facility (TALF) that is intended to provide liquidity to the market for non-mortgage asset-backed securities (ABS), with the ultimate aim of increasing the supply and availability of consumer credit. Under the Terms and Conditions released by the Federal Reserve Bank of New York (FRBNY), the FRBNY will make up to $200 billion in non-recourse loans secured by eligible ABS. The Treasury, under the Troubled Asset Relief Program, will provide $20 billion of credit protection to the FRBNY in connection with loans made under the TALF.

Eligible ABS collateral must have a long-term credit rating in the highest investment-grade rating category (e.g., AAA) from at least two major ratings organizations and must be newly or recently originated auto loans, student loans, credit card loans, or small business loans guaranteed by the U.S. Small Business Administration. Exposures to mortgage-backed securities or other asset classes are not initially eligible, but may be included at a later date. Any U.S. person (defined as a natural person who is a U.S. citizen, a business entity organized under the laws of the United States (including an entity that has a non-U.S. parent company), or U.S. branch or agency of a foreign bank) who owns eligible collateral may participate in the TALF. TALF loans will have a term of one year with interest payable monthly. The FRBNY will establish a discount for each class of eligible collateral and will assess a non-recourse loan fee at the inception of each loan transaction. Each borrower must use a primary dealer as an agent for the borrower to access the TALF and to deliver eligible collateral to a clearing bank. The FRBNY plans to cease making new loans on December 31, 2009. See the links below for more information on the TALF, including press releases from the Treasury and Federal Reserve, a statement from Treasury Secretary Paulson, and the program's Terms and Conditions.

Treasury Department Press Release about TALF Program

Secretary Paulson Statement

Federal Reserve Press Release about TALF Program

Terms and Conditions

Mortgage-Backed Security Purchase Program

The Fed also announced a program designed to increase the availability of credit for home loans. Beginning next week, the Fed will initiate a program to purchase up to $100 billion in direct obligations of Government Sponsored Entities (Fannie Mae, Freddie Mac, and the Federal Home Loan Bank) through a series of competitive auctions.  The Fed will also be purchasing up to $500 billion of mortgage-backed securities (MBS) backed by Fannie Mae, Freddie Mac, and Ginnie Mae. Purchases of MBS will be conducted by asset managers selected via a competitive process with the goal of beginning these purchases before year-end. The Fed has indicated that additional details on the program and the specific terms for MBS purchases will be forthcoming. Please see the link below for further details.

Federal Reserve Press Release about MBS Program

If you have questions or would like further information on either of these new programs, please contact any of the following attorneys:

Dominic De Simone, Practice Leader, Commercial Real Estate Recovery
Joseph A. Fanone, Public Finance Department
Thomas Hauser, Business andnance Department
Alan Kaplinsky, Banking and Consumer Financial Services
Justin P. Klein, Business and Finance Department
Vincent Marriott III, Bankruptcy, Reorganization and Capital Recovery Group
Mary J. Mullany, Business and Finance Department 
Brian Pinheiro, Employee Benefits and Executive Compensation Group

Prior Alerts

November 18, 2008
Treasury Department Issues Term Sheet and Announces December 8, 2008 Deadline for Private Financial Institutions to Participate in the Capital Purchase Program

November 14, 2008
Kashkari Details Future TARP Deployment Strategy

November 12, 2008
Treasury Secretary Details TARP Strategy 

November 7, 2008
Treasury Department Announces Solicitation Regarding Asset Management Services in Connection with EESA Capital Purchase Program

November 6, 2008
Beware: Is There a "Trojan Horse" in the Capital Purchase Program Securities Purchase Agreement?

October 23, 2008
Kashkari Testifies Before Senate Banking Committee

October 14, 2008
Treasury, Federal Reserve, and FDIC Joint Statement Capital Purchase Program

October 13, 2008
Remarks on TARP to Institute of International Bankers

October 7, 2008
Emergency Economic Stabilization Act of 2008/TARP

October 6, 2008
Employee Benefits and Executive Compensation Issues Connected to Emergency Economic Stabilization Act of 2008

October 6, 2008
Emergency Economic Stabilization Act of 2008 

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