What's behind the great TALF bust?
TIME's Massimo Calabresi has a really interesting little piece about the spectacular lack of interest in the latest round of Term Asset-Backed Securities Loan Facility lending. TALF has $200 billion in potential funding. Last month it loaned $4.7 billion. This month, just $1.7 billion. Writes Massimo:
There are three possible reasons for the shortfall in demand. First, there have been disagreements over terms between some of the dealers who are packaging consumer loans and the investors they want to sell them to. The New York Fed has engaged both sides in several of these disputes and believes it can resolve the problems, says the Fed official. The second potential reason for the TALF shortfall is fear of retroactive penalties from Washington. "There's nervousness about the possibility of retroactive action by Congress," says a government official.
The last possibility may be the most worrying — that there has been a fundamental shift in the appetite for nonbank securitized loans, which previously represented some 40% of U.S. consumer lending. "The Fed and Treasury have said we're prepared to lend up to $200 billion for small business, auto, student and other kinds of loans, but what is the market for them?" says the Fed official. "You still have to figure out what the demand is at this point, because of the state of the economy and whether people are comfortable doing these [securitized nonbank loans]."
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Here's an interesting point from Bloomberg:
http://www.bloomberg.com/apps/news?pid=20601087&sid=a3iWaSGBfwAs&refer=home
"By Scott Lanman
April 7 (Bloomberg) -- The Federal Reserve may offer investors longer-term loans at higher interest rates to buy commercial mortgage-backed securities, aiming to protect the central bank's balance sheet while acceding to an industry plea.
Lobbyists in the commercial mortgage-backed securities industry say the Fed needs to provide loans of at least five years, rather than the current three-year limit, to avert a meltdown in the market. Fed officials, wary of granting the request outright, are considering a compromise in altering terms of its $1 trillion emergency-lending program.
Fed policy makers are wary of loosening limits on the Term Asset-Backed Securities Loan Facility because longer loans would make it more difficult to tighten credit when inflation picks up. At the same time, rejecting the industry's request may further stymie the TALF after a slow start that's hindering Chairman Ben S. Bernanke's efforts to revive the economy...
“We have been advocating strongly for a term of at least five years,” said Christopher Hoeffel, president of the Commercial Mortgage Securities Association, a trade group. “The most important thing is the term of the loan. If the cost of the financing and the equity requirement increased with the length of the loan, that would be a workable solution.”
Investor participation would be curtailed by a loan term of less than five years, said Hoeffel, who is also a managing director at Investcorp."
- foxjust About to walk to LA Public Library for this http://bit.ly/7LgRu6 Am told only a nobody walks in LA - 5 days ago
- foxjust just took first ride on LA metro. Totally disorienting not to have car to park here - 5 days ago
- foxjust Thanks to Bama fans for reminding us we needed to buy TP! (Turns out we're fine on detergent). Oh, and nice game #ironbowl - 1 week ago
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