Category — TALF

On August 18, 2009, the Federal Reserve Bank of New York (New York Fed) announced that it may limit the volume of Term Asset-Backed Securities Loan Facility (TALF) loans secured by legacy commercial mortgage-backed securities (CMBS), and that it is considering whether to allocate such volume via an auction or another procedure.

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On May 29, 2009, the White House announced that it is revising restrictions placed on lobbyists from communicating with executive branch officials regarding funds under the American Recovery and Reinvestment Act (Recovery Act).  More detailed guidance is forthcoming from the Office of Management and Budget (OMB), but the statement released on Friday makes clear that the absolute ban on lobbyists communicating orally or participating in meetings with executive branch officials has been revised.

President Obama issued a memorandum on March 20, 2009 prohibiting registered lobbyists from having oral communications with government officials about specific Recovery Act projects or applications and requiring that government officials only consider the views of registered lobbyists on such issues if the views were submitted in writing. The memorandum also required that oral discussions of general policy matters regarding the Recovery Act made by registered lobbyists be publicly disclosed. (Please click here to read our alert on the March 20 memorandum.)

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On May 19, 2009, the Federal Reserve Bank (FRB) broadened the eligibility requirements for loan collateral under the Term Asset-Backed Securities Loan Facility (TALF) to include Commercial Mortgage-Backed Securities (CMBS) issued before January 1, 2009.  By making older CMBS eligible collateral for TALF loans, the FRB hopes to increase liquidity in a credit sector that represented about 20 percent of outstanding commercial mortgage lending before mid-2008.  The initial subscription dates for pre-2009 CMBS and CMBS issued in 2009 will be in late July (the exact date to be announced shortly) and June 16, respectively.

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On May 1, 2009, in response to recommendations from the commercial mortgage-backed securities (CMBS) sector, the Federal Reserve Bank (FRB) announced that, starting in June, five-year loans will be available under the Term Asset-Backed Securities Loan Facility (TALF) for the purchase of CMBS and insurance premium finance loans. The FRB currently intends to make up to $100 billion available for TALF loans with five-year terms. It will continue to evaluate that limit, however.

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In his Quarterly Report to Congress submitted on April 21, 2009, the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) made recommendations to address what the SIGTARP identified as “inherent vulnerabilities” in the Department of the Treasury’s Public-Private Investment Program (PPIP).

Of particular concern to the SIGTARP is the ability of Public-Private Investment Funds (PPIFs), formed pursuant to the Legacy Securities Program, to purchase legacy residential mortgaged-backed securities (RMBS) through the Term Asset-Backed Securities Loan Facility (TALF). The Treasury has previously announce that it will co-invest up to 50 percent of the equity in such PPIFs, and that, in addition, such PPIFs will be eligible to borrow from the Treasury an amount equal to up to 50 percent of the PPIF’s total equity.

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On March 11, 2009, the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), in coordination with the IG for the Board of Governors of the Federal Reserve System (FRB-OIG), announced the formation of a broad multi-agency task force designed to deter, detect and investigate instances of fraud in the Terms Asset Backed Securities Loan Facility (TALF) program.  The task force will consist of officials from the FBI, the Financial Crimes Enforcement Network, the U.S. Immigration and Customs Enforcement, the Internal Revenue Service, Criminal Investigation, the Securities and Exchange Commission and the U.S. Postal Inspection Service.

According to the announcement, the TALF is a Federal Reserve program in which the Federal Reserve Bank of New York (FRBNY) will make loans that are fully secured by collateral-asset-backed securities.  The loans are meant to make credit available to consumers and small businesses on more favorable terms.  FRBNY will loan up to $200 billion secured by asset-backed securities that are backed by credit-card loans, auto financing, student loans and Small Business Administration loans.

The task force participants will attend regular briefings on the program, identify areas of fraud, train agents and analysts on key fraud issues and serve as points of contact regarding TALF cases that arise.  This task force creation is yet another example of a phenomenon that is manifesting itself throughout the federal government in Recovery Act oversight:  interagency task forces.  The IGs and their sister law enforcement and regulatory agencies are dedicating tremendous resources to fraud prevention and detection through increasingly coordinated efforts via multi-agency task forces and working groups.

See the announcement here.

The Term Asset-Backed Securities Loan Facility (TALF) is a new government program established jointly by the Board of Governors of the Federal Reserve and the U.S. Treasury Department to increase credit availability in the market. Under TALF, U.S. entities, including most funds organized and managed in the United States that invest in securitized consumer loans will be able to borrow from the Federal Reserve Bank of New York (the “New York Fed”), based on the value of the asset-backed securities (ABS) collateral, at low interest rates subject to a limited collateral haircut.

According to a joint press release and other publications on March 3, 2009 by the Board and the Treasury, the New York Fed will make up to $200 billion in fully secured loans under TALF, with the first loans settling on March 25, 2009 based on subscriptions received by March 17, 2009. Subsequent subscriptions will be scheduled on the first Tuesday of each month. TALF will cease making new loans on December 31, 2009, unless extended by the Board.

Despite previous announcements to the contrary, TALF sponsors, underwriters and borrowers will not be subject to executive compensation limits as a result of their participation in TALF, in order to maximize the effect of TALF on the credit markets.

Read the full alert here.