WASHINGTON (3/4/09)—The U.S. Treasury Department and Federal Reserve Board Tuesday announced the launch of their Term Asset-Backed Securities Loan Facility (TALF), which will make up to $200 billion in three-year loans to eligible institutions. TALF is designed to kick-start securitized lending. Based on the eligibility criteria, credit unions will be among those institutions that can apply for TALF loans. TALF is intended to make credit available to consumers and small businesses at favorable terms by facilitating the issuance of asset-backed securities. Under the program, which will be executed through the Federal Reserve Bank of New York, an institution applying for a loan must use one of the following forms of collateral:
* Small Business Administration (SBA) securities; * Student loan securities; * Auto loan securities; or * Credit card securities.
Credit Union National Association (CUNA) Counsel for Special Projects Michael Edwards said participation, obviously, is subject to federal and state investment laws for credit unions. Edwards noted, “Federal credit unions, in general, can invest in SBA loan pools and Sallie Mae securities—but not generally in auto loan- or credit card-backed securities under National Credit Union Administration rules. “State laws on what types of investments credit unions are allowed to make are sometimes more liberal, but vary quite a bit state to state.” The way the program works, Edwards explained, is that a credit union or other company with eligible asset-backed securities uses those securities as collateral for a non-recourse loan of three-year duration. “The practical affect of the TALF program, because of its use of non-recourse lending, is to add a layer of government guarantee to these assets over and above any existing guarantee,” Edwards said. Since they are non-recourse loans, the TALF program can seize only the securities that back the loan if the loan is not repaid by the end of the three-year term. Edwards noted that the Treasury-Fed documents declare eligibility for “(a)ny U.S. company that owns eligible collateral…provided the company maintains an account relationship with a primary dealer.” He added that institutions interested in TALF loans should note that the securities must be backed by recently originated loans.