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The U.S. Department of the Treasury and the Federal Reserve this morning announced the creation of a new Term Asset Backed Securities Loan Facility, which will lend up to $200 billion to holders of securities that back credit card, auto, student and small-business loans. Treasury officials designed the facility to jump-start issuance of new consumer loans and business loans backed by the U.S. Small Business Administration. Treasury Secretary Henry Paulson noted in prepared remarks this morning that issuance of asset-backed securities reached $240 billion in 2007. But jitters in the credit market created a steep decline in securities issuance in the third quarter, and "the market essentially came to a halt in October," Paulson wrote. "As a result, millions of Americans cannot find affordable financing for their basic credit needs. And credit card rates are climbing, making it more expensive for families to finance everyday purchases." Fed and Treasury officials hope the move will "enable a broad range of institutions to step up their lending, enabling borrowers to have access to lower-cost consumer-finance and small-business loans," Paulson continued. Under the program, the Federal Reserve Bank of New York will lend up to $200 billion in nonrecourse loans for up to one year to holders of newly issued securities rated AAA by such agencies as Fitch Ratings Ltd. or Moody's Investors Services. Under the Emergency Economic Stabilization Act of 2008, the Treasury Department will provide $20 billion in credit protection to the Fed for the facility. The facility will stop making new loans on Dec. 31, 2009, unless the Fed decides to extend the facility's lifespan.
