WASHINGTON, D.C. — On Monday, the Federal Reserve Board and the Treasury Department announced that they have approved an extension in the Term Asset-Backed Securities Loan Facility.

However, officials indicated that they do not foresee any additions to the types of collateral eligible for the facility. The extension date pushes TALF until March 31, 2010.

"Conditions in financial markets have improved considerably in recent months. 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 explained Monday.

"Because new CMBS deals can take a significant amount of time to arrange, the Federal Reserve and Treasury approved TALF lending against newly issued CMBS through June 30, 2010," the Fed continued.

The board indicated it will continue to monitor financial conditions and will revisit another possible extension in the future.

The Federal Reserve and Treasury had previously authorized TALF loans through Dec. 31, 2009.

The securities already eligible for collateralizing TALF loans include the major types of newly issued, triple-A-rated ABS backed by loans to consumers and businesses, and newly issued and legacy triple-A-rated CMBS. 

"The Federal Reserve and Treasury are prepared to reconsider their decision if financial or economic developments indicate that providing TALF financing for investors' acquisitions of additional types of securities is warranted," officials highlighted.

Discussing monetary policy on Aug. 12, the board said it has continued to see household spending show signs of stabilizing.

"Information received since the Federal Open Market Committee met in June suggests that economic activity is leveling out. Conditions in financial markets have improved further in recent weeks. Household spending has continued to show signs of stabilizing but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth and tight credit," officials reported.

At that time, the committee indicated it will maintain the target range for the federal funds rate at zero to 1/4 percent and "continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period."

"As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year," the Fed stated.

Moreover, the Fed said it is in the process of buying $300 billion of Treasury securities.

"To promote a smooth transition in markets as these purchases of Treasury securities are completed, the committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October," officials pointed out.

Senior Loan Survey Reviews Credit Markets

Furthermore, the Fed also released some findings from its July 2009 Senior Loan Officer Opinion Survey.

"In the July survey, domestic banks indicated that they continued to tighten standards and terms over the past three months on all major types of loans to businesses and households, although the net percentages of banks that tightened declined compared with the April survey," officials discovered.

The survey also found that, "For the second consecutive survey, domestic banks reported little change in their willingness to make consumer installment loans. The net fraction of domestic banks that reported tightening credit card lending standards fell significantly from nearly 60 percent to around 35 percent. Similarly, the net fraction of domestic banks that reported tighter standards on consumer loans other than credit cards declined to 35 percent, from 45 percent in April.

"For both credit card and other consumer loans, domestic banks continued to report tightening of loan terms and conditions, although the net fractions of banks that tightened were not as high as in April. The net fraction of domestic banks reporting weaker demand for all types of consumer loans rose a few percentage points, to about 20 percent," the data revealed.

In addition to real estate and credit card credit results, the Fed found that senior loan officers agreed that on other consumer loans, such as auto, a loosening in underwriting is generally expected by the end of 2011 or sooner.

"When asked about expected lending standards for other consumer loans, 25 percent of respondents reported that standards for such loans to prime borrowers were not tighter than longer-term average levels, and about 20 percent reported the same for non-prime borrowers," the survey indicated.

"Another 50 percent of respondents indicated that standards for other consumer loans to prime borrowers were tighter than longer-term average levels but would return to such levels by the end of 2011 or earlier, and another 25 percent said the same applied to such loans to nonprime borrowers," officials added.