Term-Asset-Backed Securities Loan Facility: Fed Rolls Out New Consumer Credit Program

WASHINGTON — The government launched a much-awaited program Tuesday to spur lending for autos, education, credit cards and other consumer loans by providing up to $200 billion in financing to investors to buy up the debt.

If the program succeeds, it should help bust through the credit clogs in place since last year and make it easier for Americans to finance large and small purchases at lower rates, Federal Reserve Chairman Ben Bernanke told Congress. That, in turn, would help revive the economy, he said.

Created by the Fed and the Treasury Department, the program has the potential to generate up to $1 trillion of lending for businesses and households, the government said. It will be expanded to include commercial real estate, though that won't be part of the initial rollout.

"There's a looming crisis in commercial real estate whereby owners of shopping malls, hotels, rental properties and many other types of buildings are unable to refinance or to pay for new construction because the (commercial) securitization market is completely shut down," Bernanke said during an appearance before the Senate Budget Committee.

The program will start off by providing $200 billion in loans to investors with the goal of jump-starting lending to consumers and small businesses. The program, dubbed the Term Asset-Backed Securities Loan Facility, was first announced late last year and originally was scheduled to start in February.

Participants _ companies and investors that pledge eligible collateral to back the loan _ must request the new government loans by March 17. The Fed will provide the three-year loans on March 25.

"We should see immediate benefits to students, to credit cards, to small businesses, to consumer loans," Bernanke told lawmakers.

Under the program, the Fed will buy securities backed by different types of debt, including credit card, auto, student and small business loans. The credit crunch _ the worst since the 1930s _ has made it much harder for people to obtain such financing , and those that do can be socked with high rates.

Story continues below

advertisement

Before the financial crisis, banks relied on packaging such loans into securities and selling them to pay for additional lending. That process had financed about 25 percent of consumer loans in recent years until the credit markets ground to a halt in October, the government said.

Anil Kashyap, a professor at the University of Chicago's Booth School of Business, said the program should make it easier for consumers to get loans. But he cautioned that the Fed's involvement in this area could have unintended consequences elsewhere by making other debt securities not backed by the government less attractive to investors.

"We'd really rather the credit markets just work properly," Kashyap said.

The Fed plans to keep the program running through December, but said it could be extended.

The Fed and Treasury expect that securities backed by car-fleet leases as well as by certain equipment, including for heavy construction and for agriculture, will be eligible for Fed funding in its April operation. Participants in the second round of funding must request the government loans by April 7, which the Fed will disburse on April 14.

The program, the Fed said, will remain focused on securities that are best able to aid the economy and financial markets and that can be added at a low risk to the government.

Limits on executive compensation that apply to financial institutions receiving capital from the $700 billion rescue program won't apply to lenders and other participants benefiting from the program. That's because it wants "to encourage market participants to stimulate credit formation" and use the program, the Fed said.

___

AP Economics Writer Christopher S. Rugaber contributed to this report.

Comments

[MetalCanuck]

These people do not get it, people don't have money to pay the loans they have. We need a "end of globalism plan" that means bring jobs back to North America plan.

Without that forget it.

[KillTheMessenger]

Didn't we give something like $150 billion away for free last year? How's that going for you? Did you feel stimulated?

:-)

[Paul Peete - Huffpost Blogger]

It's funny how some see this program as loans to deadbeats and others see it as more for the wealthy and indenture for average citizens. These cynical views overlook the fact credit is the lifeblood of the whole economy and good hard working Americans who pay their bills on time, send kids of to college, buy cars and equipment to operate their businesses are unable to secure credit now.

It would be nice if Americans had enough cash on hand to weather this crisis and the 5% savings rate currently seen is a move in the right direction for consumers, but any realistic view of the economy must recognize the importance consumer loans are to the resumption of a working economy.

[drymartini1]

i am ok with govt. giving loans to credit worthy buyers. giving 0% down payment loans to cars or houses is what causes problems. earlier it was banks so we were ok with it because as long as i am not a stockholder of that moronic bank, i am ok.

as a taxpayer i dont have that luxury. i would have govt. make loans to worthy borrowers not deadbeats.

[mdh6604]

I'm a small business owner who is getting squeezed on both ends of this crisis -- from consumers who aren't spending and banks who aren' lending. I completely agree that credit is critical to our economy and needs to flow freely for things to just simply work.

What troubles me, however, with this aspect of TALF is the fact that I still cannot walk into any my banks for financing for my operation through this downturn, even with good credit. Despite the Fed buying securities backed by the different types of debt they're trying to break free of this logjam, bankers still don't trust anyone, including each other. We'll continue to languish for months with no hope in sight of a solution other than to keep working it out for ourselves and "hustling" to get by down here on "Main Street."

I wish the Fed would have announced a program where small businesses could go directly to the government and bypass the banks altogether. Why should the banks and big corporations be the only ones with the "direct line" to Bernanke and Geithner for the funds they need to keep their businesses running? We're dying out here. I need to consolidate and refinance my debt and fund expansion of my business so I can actually hire employees, upgrade equipment, and complete long-overdue maintenance projects. That will stimulate the economy faster than waiting for these bankers who got us into this mess in the first place to figure everything out.

[Mnemanth]

I sincerely hope that Americans are seeing "credit" for what it is.
"Here, I'll give you something today...an­d keep you on the hook for it for a long long time!"
Thanks for "rolling out" another indenturement program. Continued financial slavery for the People, while our keepers are given hundreds of billions in grants?
Take your loans and shove it- they're not welcome here no more!

[drymartini1]

more money to deadbeats in the economy !! way to go !! jeez