TALF is Launched with Revised Terms as part of the U.S. Financial Stability Plan for Economic Recovery : Paul Weiss Financial Crisis Resource Alert

Washington’s Financial Stability Plan (FSP), according to James Cooper at Business Week:

[R]ecognizes that a sustainable recovery depends on three things: removing the fear of bank insolvency, rejuvinating the securitization process in the credit markets, and stabilizing housing activity and home prices.

First. The FSP’s Public-Private Investment Fund which is “aimed at removing toxic mortgage-related assets from bank balance sheets” according to Business Week, ” is moving much more slowly than investors want to see“. This has to be sped up.

Second. Cooper writes on the mortgage problem that:

Analysts are … optimistic about the FSP’s housing program and its efforts to mitigate mortgage foreclosures. The Housing Affordability and Stability Plan (HASP), for which additional details were released on Mar. 4, will provide cash incentives to both homeowners at risk of default and mortgage lenders and servicers to encourage loan modification.” [link added by LawPundit]

Third. Cooper notes:

[T]he Term Asset-Backed Securities Lending Facility (TALF) will be up and running on Mar. 17.

TALF is a $1 trillion U.S. economic recovery program of securitized lending designed to jump-start new lending to consumers and businesses by providing cheap credit to large investors to purchase newly issued securities backed by such loans. Indeed, large investors have shown a great deal of interest in this program, which strikes at the heart of the recession’s cause.

In this vein, we just received a Paul, Weiss memorandum alert which can be viewed as a .pdf at TALF is Launched with Revised Terms. As written on that alert : “This memorandum is not intended to provide legal advice, and no legal or business decision should be based on its content.” The memorandum is part of the Paul, Weiss Financial Crisis Resources and it tells us that TALF is the acronym for Term Asset-Backed Securities Loan Facility which was announced by the the Department of Treasury and the Federal Reserve “to jump-start lending markets by providing loans to investors who purchase qualifying asset-backed securities (“ABS”).

As Paul, Weiss reports, there are now “revised terms and conditions for the first TALF fundings” which should be examined at TALF is Launched with Revised Terms because they “may be interesting to investors.

The title of an article at the Christian Science Monitor by Mark Trumbull puts TALF into proper perspective with Fed launches plan to revive consumer lending, as Trumbull writes:

The Federal Reserve and Treasury’s move Tuesday to pour billions of dollars into lending markets is an attempt to address the fundamental cause of the current economic crisis.

Though concerns about the financial system have centered recently on traditional banks, the financial breakdown began when the market for securitized loans collapsed. The subprime mortgage crisis revealed that the default risk for these loans – where loan money is bundled together then sold off in pieces – was higher than forecast. When investor funding evaporated, those who depended on those loans – from small businesses to car buyers – were left stranded.

The government hopes to stimulate as much as $1 trillion in new lending. The move comes as US stock markets sank this week to new 12-year lows on concerns that the global recession is deepening, and that these credit problems – central to the downturn – remain unresolved.

“It’s a way to jump-start securitized lending, which has been problematic,” says Brian Bethune, an economist at IHS Global Insight in Lexington, Mass. It won’t end the credit crisis by itself, but “it’s going to help.

See the rest of Trumbull’s article.