Investors request $4.7 billion in Fed loans

March 19, 2009 5:13:57 PM PDT
Investors requested $4.7 billion worth of loans from a new government program that aims to jumpstart lending to consumers and small businesses, the Federal Reserve Bank of New York said Thursday. Investors - such as hedge funds, private equity funds and mutual funds - will use the money they get from the Fed to buy newly issued securities backed by a range of consumer and business debt. Loan requests were due Thursday. The Fed will provide three-year loans to investors on March 25.

In the first batch of requests, $2.8 billion is to buy securities backed by credit cards and $1.9 billion is for securities linked to auto loans. No loans were requested for securities collateralized by student loans or loans guaranteed by the Small Business Administration.

"This is a good start for a program that we will continue to build on in the future," said William Dudley, president of the New York Fed.

Analysts, however, said the $1 trillion program has gotten off to a slow start. It's been hobbled by rule changes, worries from investors over financial privacy and fears among would-be participants about being the first to use the facility.

In the program's first phase, the Fed will be making up to $200 billion available in loans to investors. Investors will use the money to buy securities backed by autos, student loans, credit cards and other consumer debt. The Fed hopes this program will make loans to consumers and small businesses more widely available at lower rates.

The Fed will make loans each month through December, when the program is set to expire. The Fed could opt to extend it, though. In the April operation, securities backed by auto-fleet leases, auto-dealer loans, business equipment and loans extended by mortgage servicers to cover payments missed by homeowners will be among the new categories added to the mix, the Fed said Thursday. Participants in this second round must file their loan requests by April 7. The Fed will provide them the loans on April 14.

The Fed hopes the program will make loans to consumers and small businesses more widely available at lower rates.

Lending to consumers and businesses has suffered when the credit crisis nearly shuttered the markets for asset-backed securities, a critical component of lending in the U.S financial system.

To help bust through those clogs, the Fed and the Treasury Department announced late last year that they were creating the program dubbed the Term Asset-Backed Securities Loan Facility, or TALF. It was originally supposed to start in February.

Since the program was announced, Dudley said there's been some improvement in those credit markets, but they still aren't operating normally.

"Our goal is to get the securitization market working again," he said.

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