Fed, Treasury Heed Advice, Extend Emergency Program

By Adriel Bettelheim | August 17, 2009 10:39 AM | | Comments (0)

Heeding the concerns of Congress and the real estate industry, the Federal Reserve and Treasury Department on Monday extended for three months an emergency program designed to unfreeze the market for mortgages and other consumer and business loans.

The Term Asset-Backed Securities Loan Facility, or TALF, uses Treasury seed money to leverage $1 trillion for the purchase of securities backed by a variety of consumer loans from banks that were impaired by contagion from the mortgage crisis. The expectation is that the purchases will cleanse balance sheets and free the lenders to make new loans. Monday's action extends the program to June 30 for newly issued mortgage-based securities, instead of year's end. The program previously was extended to March 31 for non real estate-backed securities.

Commercial real estate interests implored the Obama administration and the Fed to extend the program, saying it was taking longer than expected to get going because of the time involved in packaging loans into mortgage-backed securities. The concerned were echoed by 41 members of Congress, including House Financial Services Chairman Barney Frank, D-Mass., who sent Fed Chairman Ben S. Bernanke and Treasury Secretary Timothy F. Geithner a July 31 letter asking for a one-year extension, through December 2010.

Lawmakers and real estate interests remain concerned about falling commercial real estate values, which have made it harder to refinance loans on office buildings, shopping malls and other commercial properties.

TALF loans are among the efforts the administration promotes for hastening the economic recovery, because it's helped cut borrowing costs in some markets. Bloomberg reports the gap, or spread, on top-rated securities backed by consumer loans relative to benchmark interest rates has fallen as much as 2.15 percentage points to 0.60 percentage point since the TALF started in March.

Fed officials said they will continue to monitor the situation to see whether further adjustments are warranted "and will consider in the future whether unusual and exigent circumstances warrant a further extension of the TALF to help promote financial stability and economic growth," according to a statement.

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