It appears that the market for newly issued AAA ABSs has somewhat normalized based on the fact that TALF lending has held steady at around $40 to $45 billion for nearly six months. The facility will stop making loans on collateralized by newly issued CMBS’s on 6/30/10 and all other loans collateralized by other types of TALF eligible newly issued and legacy ABS on 3/31/10. Unless this support is extended by the Board of Governors I imagine that the 3/31/10 deadline might be the first real test of the health of the securitized market. Remember that these are non-recourse loans and that the U.S. Treasury has provided $20 billion of credit protection to the Federal Reserve Bank of New York via the SPV that is purchasing these ABSs.
Source: Federal Reserve Bank of St. Louis
About TALF:
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The Term Asset-Backed Securities Loan Facility (TALF) is the name of a program created by the US Federal Reserve (the Fed), announced on November 25, 2008.[1] The facility will support the issuance of asset-backed securities (ABS) collateralized by student loans, auto loans, credit card loans, and loans guaranteed by the Small Business Administration (SBA). Under the TALF, the Federal Reserve Bank of New York (FRBNY) will lend up to $1 trillion (originally $200 billion) on a non-recourse basis to holders of certain AAA-rated ABS backed by newly and recently originated consumer and small business loans. As TALF money does not originate from the US Treasury, the program does not require congressional approval to disburse funds.
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FRBNY: “New issuance of ABS declined precipitously in September and came to a halt in October. At the same time, interest rate spreads on AAA-rated tranches of ABS soared to levels well outside the range of historical experience, reflecting unusually high risk premiums. The ABS markets historically have funded a substantial share of consumer credit and SBA-guaranteed small business loans. Continued disruption of these markets could significantly limit the availability of credit to households and small businesses and thereby contribute to further weakening of U.S. economic activity. The TALF is designed to increase credit availability and support economic activity by facilitating renewed issuance of consumer and small business ABS at more normal interest rate spreads.”
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Eligible collateral will include U.S. dollar-denominated cash ABS that have a long-term credit rating in the highest investment-grade rating category from two or more major nationally recognized statistical rating organizations (NRSROs) and do not have a long-term credit rating of below the highest investment-grade rating category from a major NRSRO. Synthetic ABSs do not qualify as eligible collateral