Fed Sees Pickup in ABS and TALF Demand

The Federal Reserve is seeing a pickup in activity in the asset-backed securities market and more demand for its Term Asset-Back Securities Loan Facility, according to chairman Ben Bernanke. In a letter to Rep. Keith Ellison, D-Minn., the Fed chief notes that investor demand for TALF loans fell to $1.4 billion in April from $4.7 billion the previous month due to certain issues involving primary dealer banks, which now have been resolved. "In the past few weeks, investors appear to be more willing to participate in the program, and $10.9 billion in TALF loans were requested at the subscription for the May funding. Early indications are that demand for TALF loans in June will be even higher," Mr. Bernanke said. The Fed recently expanded the TALF program to include commercial mortgage-backed securities. Rep. Ellison and 10 other lawmakers inquired about the Fed's efforts to make sure the loans underlying the ABS are not predatory or fraudulent. Each issuer has to hire an external auditor to provide an opinion on the quality of the assets being rated by the credit rating agencies. But the "eligibility of consumer ABS accepted as collateral in TALF does not depend on the terms of the loans backing the ABS," the May 12 letter says.