WASHINGTON — The Federal Reserve is adjusting the interest rates it will charge to borrowers using its new Term Asset-Backed Securities Loan Facility, known as TALF.
Beginning in May, fixed-rate loans through the facility that are collateralized with asset-backed securities not guaranteed by the government will face interest rates based on the underlying securities' weighted average life to maturity.
Loans secured with asset-backed securities with a waited average life to maturity of less than one year will be charged the one-year London interbank offered rate, or Libor, swap rate plus 100 basis points. Those secured with asset-backed securities with waited average lives to maturity of between one and two years will be charged the two-year Libor swap rate plus 100 basis points. Loans secured with asset-backed securities with weighted average lives to maturity of more than two years will continue to be charged the three-year Libor swap rate plus 100 basis points.
The Fed said the move is aimed at getting interest rates to better match the duration of the underlying collateral.
The Fed launched TALF, an effort aimed at spurring consumer and small business lending, in March.