NEW YORK — According to U.S. Structured Finance, initial market reaction to the U.S. Treasury's recently introduced TALF program is mixed. Basically, one of the goals of this new program is to make auto loans more available for consumers.

"While some are optimistic that it will inject substantial liquidity into the ABS market, many believe some of its restrictions will need to be loosened before that can happen," explained U.S. Structured Finance analysts this week.

"The one-year loan term and the requirement that the underlying collateral be new or recently originated severely limit the amount of ABS issuance that can be secured by the facility. Furthermore, the program is not able to be utilized by many of the biggest lenders because they can not sell ABS backed by their self-originated receivables, which is most of their production. Additionally, the haircut rate that is used to price the collateral may make it uneconomical if the returns are unattractive," they added.

More specifically, as part of the Term Asset-Backed Securities Loan Facility, the government is introducing a $200 billion facility to bolster consumer finance, which includes student, auto and credit card loans and loans backed by the federal Small Business Administration. This program is designed to lend to investors who hold securities backed by this debt. The government-backed mortgage arena is also getting assistance.

U.S. Structured Finance explained that that eligible collateral for this new Treasury program includes:

—Eligible collateral will include U.S. dollar-denominated cash (i.e., not synthetic) ABS that have a long-term credit rating in the highest investment-grade rating category (e.g., AAA) from two or more major nationally recognized statistical rating organizations.

—All or substantially all of the credit exposures underlying the eligible ABS must be newly or recently originated exposures to U.S.-domiciled obligors. The underlying credit exposures of eligible ABS initially must be auto loans, student loans, credit card loans or small business loans guaranteed by the U.S. Small Business Administration. This may be expanded later to include commercial mortgage-backed securities, non-agency residential mortgage-backed securities or other asset classes.

—Originators of the credit exposures underlying eligible ABS (or, in the case of SBA-guaranteed loans, the ABS sponsor) must have agreed to comply with or already be subject to the executive compensation requirements in section 111(b) of the Emergency Economic Stabilization Act of 2008.

—Eligible collateral for a particular borrower must not be backed by loans originated by the borrower or by an affiliate of the borrower.

Furthermore, the company indicated that the structure of the program is as follows:

—Credit extensions under the TALF will be in the form of non-recourse loans secured by eligible collateral. Substitution of collateral during the term of the loan will not be allowed. TALF loans will have a one-year term, with interest payable monthly. The term of TALF loans may be lengthened later, if appropriate. TALF loans will not be subject to mark-to-market or re-margining requirements.

—Any remittance of principal or interest on eligible collateral must be used immediately to pay interest due on the TALF loan or to reduce its principal amount.

—Collateral haircuts will be established by the Fed for each class of eligible collateral. Haircuts will be determined based on the price volatility of each class.

Commenting on the TALF, U.S. Structured Finance officials said, "DBRS recognizes the need for the U.S. Treasury to provide liquidity to financial institutions that provide small business loans and consumer lending such as auto loans, student loans and credit cards and believes that the TALF can jump-start the ABS market if implemented appropriately.

"As a result, DBRS will continue to participate in industry discussions over the next few months as provisions of the program are finalized and monitor its impact on consumer lending and issuance trends," they continued.

Just after the U.S. Treasury announced the new program last week, the National Auto Dealers Association chimed in with its response, saying some clarification is still needed.

While the NADA supports the move, it says wholesale financing for dealers still needs to be addressed.

Basically in establishing the TALF, the Federal Reserve reserved the right to clarify its reach, and NADA said it is still working with the agencies to do just that.

"As pleased as we are with today's actions by the Federal Reserve and the Treasury," Annette Sykora, NADA chairman noted, "there is also a need for greater liquidity in the market for wholesale automotive inventory loans (know in the industry as 'floor plan' financing).

"We call upon the regulators to confirm that the TALF eligibility requirements reach floor plan securitizations," Sykora continued. "This would help ensure that dealers have at their dealerships the selection of vehicles that consumers want to buy when they come in to use the auto loans that the government has today freed up."

Overall, Sykora and the NADA appear to remain optimistic.

Speaking about the entire package, Sykora said, "This is great news for consumers and auto dealers alike. These steps will go a long way in helping to restore the consumer confidence that we need to return our country to economic stability. Dealers will be making sure that their customers are fully aware of the new opportunities they have when it comes to auto financing."

Making the announcement, the Federal Reserve said, "New issuance of ABS declined precipitously in September and came to a halt in October. At the same time, interest rate spreads on AAA-rated tranches of ABS soared to levels well outside the range of historical experience, reflecting unusually high risk premiums. The ABS markets historically have funded a substantial share of consumer credit and SBA-guaranteed small business loans.

"Continued disruption of these markets could significantly limit the availability of credit to households and small businesses and thereby contribute to further weakening of U.S. economic activity. The TALF is designed to increase credit availability and support economic activity by facilitating renewed issuance of consumer and small business ABS at more normal interest rate spreads," according to the Fed.