A Federal Reserve Board official said it faces challenges in expanding its Term Asset-Backed Securities Lending Facility to residential mortgage-backed securities.
"The most challenging element of the expansion … is making sure that we're doing the proper credit analysis around the risks that we might be exposing ourselves to," Hayley Boesky, a vice president and director of market analysis at the Federal Reserve Bank of New York, said last week at a conference hosted by the American Securitization Forum.
Last week the central bank announced rules for using older commercial mortgage bonds to borrow from the facility — its first expansion past newly issued securities.
The Fed will find it "much more challenging" to protect itself against losses on home loan bonds, because of their "heterogeneous nature," Boesky said. It plans to hire "collateral managers" to analyze the debt to help it get "comfortable" with determining how much capital investors will be required to put up when getting loans.
Under the Treasury Department's Public-Private Investment Program, funds run by private managers buying so-called legacy securities may be able to supplement Treasury co-investments and loans with Talf financing. The financing may also be made available to other investors as the government seeks to boost prices for U.S. home loan bonds without government backing.
"We're committed to making it happen. Our hope is it will happen," Boesky said in an interview after the conference. "As you know, PPIP for legacy assets uses Talf. But there's nothing more I can say about the certainty of it happening or when."
The Fed says the facility has been successful so far, since it has boosted the creation of asset-backed securities that are already eligible, such as card bonds, and driven down yields relative to benchmarks on a range of securitized debt. In recent years such debt had accounted for about 60% of lending before issuance dried up late last year, Boesky said during her presentation.