Fed extends consumer lending program through March | 6abc.com | 6abc Philadelphia

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By 6abc

Monday, August 17, 2009

WASHINGTON - August 17, 2009 The Fed on Monday said extended its Term Asset-Backed Securities Loan Facility through March 31 for most of the types of loans it makes. The program was scheduled to end on Dec. 31.

The TALF started in March and figures prominently in efforts by the Fed and the Obama administration to ease credit, stabilize the financial system and help end the recession. Under the program, investors use the funds to buy securities backed by auto and student loans, credit cards, business equipment and loans guaranteed by the Small Business Administration.

The program for commercial mortgage-backed securities was extended through June 30 because issuing new securities in that area "can take a significant amount of time to arrange," according to a joint news release from the Fed and the Treasury Department.

The broader TALF program had gotten off to a lethargic start, hobbled by rule changes, investor worries about financial privacy and fears that participants might become ensnared in an anti-bailout backlash from the public and Congress.

The program has the potential to generate up to $1 trillion in lending for households and businesses, according to the government. Spurring such lending is vital to turning around the economy.

The Fed and Treasury on Monday said they were prepared to reconsider this decision if financial or economic developments conditions indicate that such an expansion would still be warranted. However, the government believes the financial system is beginning to stabilize after being hit last fall by the worst financial crisis since the Great Depression.

"Conditions in financial markets have improved considerably in recent months," the Fed and Treasury said in their statement. "Nonetheless, the markets for asset-backed securities backed by consumer and business loans and for commercial mortgage-backed securities are still impaired and seem likely to remain so for some time."

The Fed last week delivered a vote of confidence in the economy, saying the downturn appeared to be "leveling out." Fed officials also said they would slow the pace of a program to buy $300 billion worth of Treasury securities, an effort aimed at keeping mortgage rates affordable. The central bank said it planned to shut down the program at the end of October.