Despite an uneven reception by Wall Street, the Federal Reserve Board and Treasury Department said Monday that the Term Asset-Backed Securities Loan Facility, or Talf, would be extended into 2010.
The central bank will make loans against newly issued asset-backed securities and older commercial mortgage-backed securities until March 31. The program's lending against newer commercial MBS will run through June 30.
The programs, which are designed to jump-start lending in consumer and business sectors, had been slated to expire at yearend.
In a joint press release, the Fed and Treasury said they had decided to keep Talf alive despite finding that "conditions in financial markets have improved considerably in recent months." Policymakers said that asset-backed securities and commercial MBS markets "are still impaired and seem likely to remain so for some time."
The Treasury and Fed said the program for newly issued CMBS has a longer timeline because "new CMBS deals can take a significant amount of time to arrange." The central bank left the door open to further extensions if needed "to help promote financial stability and economic growth."
Still, the agencies declined to expand the range of collateral it would accept for Talf loans. The program already accepts newly issued, AAA-rated ABS supported by consumer and business lending along with newly issued and "legacy" CMBS rated AAA.
"The Federal Reserve and Treasury are prepared to reconsider their decision if financial or economic developments indicate that providing Talf financing for investors' acquisitions of additional types of securities is warranted," they said.
It was unclear whether the latest changes in Talf would finally create demand from investors. The program has been plagued by lackluster interest.
The latest round of ABS lending though Talf, on Aug. 6, garnered $6.9 billion of loan requests, a 38.8% increase from a month earlier but well short of the $1 trillion the Fed and Obama administration have pledged to the program. The Federal Reserve Bank of New York got $669 million of requests in a July 16 round of lending against legacy CMBS. The central bank is to take more requests for loans supported by new and old CMBS on Thursday.