The Term ABS Loan Facility Loan Facility (TALF) earned $600 million of net interest income to date, which is equal to more than 2-1/2 percent of the TALF loans currently outstanding, according to William Nelson, Federal Reserve Board deputy director in the division of monetary affairs.

He spoke before the Congressional Oversight Panel for the Troubled Asset Relief Program (TARP), under which the Treasury provided credit protection for the TALF.

Nelson, who called TALF "a very successful use of TARP funds," said in his testimony that "the experience to date suggests that the multiple risk controls built into the TALF program have been effective and losses appear unlikely."

But if there were to be any losses on these loans, Nelson said that they would be initially absorbed by the accumulated net interest income. Additionally, the TARP funds would absorb any losses that went over the accumulated net interest up to the $4.3 billion commitment offered by the Treasury.

He added that since market conditions have improved, TALF loans seem expensive and many borrowers have repaid their loans early. Over 2,000 TALF loans at $70 billion were extended, and although no loans have come due yet, Nelson said that 1,400 loans at $49 billion have been repaid early, which leaves $21 billion outstanding.

All of the remaining TALF loans, he reported, are current in terms of payments of interest and principal, noting also that all of the collateral backing the outstanding loans are still triple-A. Additionally, the market value of the collateral backing each of the loans well exceeds the loan amount, which significantly limits the chance of borrowers defaulting.

Historical Numbers

The issuance of non-mortgage ABS, Nelson noted, rose to $35 billion in the program's first three months in 2009 after having slowed to under $1 billion per month in late 2008. In its initial months of operation, the TALF financed approximately half of the ABS issuance, with the degree of support then decreasing as the market improved, he said. The TALF supported close to 3 million auto loans, over 1 million student loans, around 900,000 loans to small businesses, 150,000 other business loans, as well as millions of credit card loans, Nelson claimed. 

When the program closed in June, $43 billion in loans was outstanding. Thus in July 2010, the Federal Reserve Board and the Treasury agreed that it was appropriate for the Treasury to reduce the credit protection offered to the TALF under the TARP from $20 billion to $4.3 billion, which is 10% of the loans outstanding when the program closed, Nelson told the oversight panel.

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