NY Fed to push ahead with Talf for toxic MBS loans

The Federal Reserve Bank of New York is to push ahead with plans to open up the Term Asset-backed Securities Loan Facility (Talf) to purchasers of toxic commercial mortgage-backed securities (CMBS) and residential mortgage-backed securities (RMBS).

Speaking yesterday at a summit on the US Treasury's Public-Private Investment Programme (PPIP) in New York, William Dudley, president of the New York Fed, reiterated that plans to extend the Talf scheme were still on track. The original scheme, which provided private institutions with public non-recourse loans to buy asset-backed securities (ABS), will be extended to provide financing for the purchase of MBSs.

"We have been rolling the Talf out in stages. First, the consumer ABS market with the first subscriptions for Talf loans [began] in March, second, new CMBS securitisations will start in early summer and third, legacy CMBS and possibly legacy RMBS [loans will be offered from] later this summer," he said.

Dudley's comments come the day after Federal Deposit Insurance Corporation chairman Sheila Bair announced that planned purchases of toxic whole loan portfolios under the PPIP legacy loans programme have been postponed – perhaps indefinitely.

While no comment has been made regarding plans to halt or scrap the companion legacy securities programme (LSP) – which would see the US Treasury partnering with private-sector asset managers to pool public and private capital to cleanse balance sheets of illiquid and hard-to-value RMBS and CMBS – the scheme is running weeks behind schedule.

Dudley's backing of the Talf portion of the LSP – which includes Federal Reserve measures to provide non-recourse loans to investors to purchase non-agency RMBS transactions originally rated AAA and outstanding CMBSs rated AAA – will come as welcome news for asset managers vying for selection as one of five official fund managers appointed to spend public money under the plan.

"The rollout of Talf to the CMBS market this summer will be important in determining the overall success of the programme," Dudley said, hinting that expansion to include pre-existing legacy RMBS and CMBS in the scheme might be dependent upon the successful induction of new CMBS into the scheme.

Dudley went on to present evidence that the Talf has already yielded positive results, pointing to increasing issuance of consumer ABSs since the launch of the scheme in March, a month that saw just four deals worth $8.3 billion coming to market. April witnessed a lull in which another four deals worth $2.9 billion used Talf monies, but in May eight deals worth $13.6 billion went through, and in the first four days of June 13 deals worth $16.4 billion had already closed, backed by Talf funds.

"We're not back yet to the $200 billion annual rate of issuance before the crisis and we don't expect to get there, but we are making a good start. Moreover the type of deals has broadened out to include a wide range of asset classes – this month's deals included credit card, auto loan and lease, equipment leasing, insurance premium and mortgage servicer securitisations," Dudley stated.

See also: Questions raised over US scheme to buy toxic assets
The big clean-up
More than 100 firms apply to buy toxic assets under PPIP
Toxic loan PPIP purchases postponed, feared dead
PPIP banks may be able to buy rivals' toxic assets