In late November 2008, the Treasury and the Federal Reserve announced a facility to finance the issuance of non-mortgage asset-backed paper in order to support lending to consumers and small businesses.
The consumer asset-backed securities market offers
- liquidity to lenders that provide loans to small businesses
- to consumers through auto loans, student loans and credit cards.
Because this assetbacked market stopped functioning, it has become difficult for consumers and businesses to obtain affordable and sufficient credit. The Treasury indicated that the lack of affordable consumer credit undermines consumer spending and weakens the economy. In an effort to make credit available, the Treasury will provide $20 billion in credit protection from EESA funds to the Federal Reserve in connection with the Federal Reserve’s $200 billion Term Asset Backed Securities Loan Facility (“TALF”). In addition, the Federal Reserve announced a program to purchase $600 billion in mortgage-backed securities and direct obligations of Fannie Mae, Freddie Mac and Ginnie Mae. These new programs exceed the $700 billion approved by Congress in October.
The Federal Reserve’s aim is to:
- reduce the costs
- increase the availability of loans for home purchases.
In turn, more home purchases would support the declining real estate market.
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