(Updates to add detail, including interest rates on loans, background.) By Meena Thiruvengadam Of DOW JONES NEWSWIRES WASHINGTON -(Dow Jones)- The U.S. Federal Reserve on Friday said it has revised the terms under which it will purchase asset-backed securities collateralized by a variety of consumer loan products.
The Fed said it will not hold auctions for credit through the facility as initially planned, instead providing loans to "all eligible borrowers with eligible collateral."
Additionally, the Fed said it has extended loan maturities under its Term Asset-Backed Securities Loan Facility from one to three years. The changes come after consultations with issuers of the securities as well as investors and dealers and could be further refined in the coming weeks, the Fed said.
The Federal Reserve Bank of New York plans to make up to $200 billion in non-recourse loans through the facility. The U.S. Treasury is slated to provide $20 billion in credit protection to the Fed in connection with the facility, which will finance only certain newly issued, highly rated asset-backed securities collateralized by student, auto, credit card and Small Business Administration-guaranteed loans.
The Fed plans to set interest rates on the loans at a level "to provide borrowers an incentive to purchase eligible ABS at yield spreads higher than in more normal market conditions but lower than in the highly illiquid conditions that have prevailed during the recent turmoil in the financial markets."
The Fed said eligible ABS must be issued after Jan. 1, 2009. In the case of auto ABS, most of the underlying loans included in the bundle must have been issued since Oct. 1, 2007; for student loans, that cutoff date is May 1, 2007, and for small businesses, the cutoff date is Jan. 1, 2008. Credit card ABS must be issued to refinance existing securities maturing in 2009 and can't be larger than the amount of the maturing loan.
The central bank announced the facility on Nov. 24 in an effort to increase credit availability for consumers and small businesses. It is one of many new lending initiatives the Fed has announced as it works to combat the global credit crisis.
Loans under the facility are expected to start in February and run through at least the end of 2009. Loans are expected to be offered monthly at a minimum of $10 million each.
-By Meena Thiruvengadam, Dow Jones Newswires; 202-862-6629; meena.thiruvengadam@dowjones.com
(Matthew Cowley contributed to this article.)
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Publié le 19 Décembre 2008 Copyright © 2008 Dowjones