WASHINGTON --- The Federal Reserve has extended the length of a program intended to spur lending to consumers and small businesses at lower rates, but the central bank said it had no plans to expand the types of loans being made.
The Fed said Monday that it was extending its Term Asset-Backed Securities Loan Facility through March 31 for most of the types of loans it makes. The program was scheduled to end Dec. 31.
The TALF started in March and figures prominently in efforts by the Fed and the Obama administration to ease credit, stabilize the financial system and help end the recession. Under the program, investors use the funds to buy securities backed by auto and student loans, credit cards, business equipment and loans guaranteed by the Small Business Administration.
Commercial mortgage-backed securities, which were added to TALF in mid-June, were extended through June 30 because issuing new securities in that area "can take a significant amount of time to arrange," according to a joint news release from the Fed and the Treasury Department.
The commercial real estate portion of the TALF is designed to boost the availability of such loans, help prevent defaults and facilitate the sale of distressed properties. Delinquency rates on commercial loans have doubled in the past year as more companies downsize and retailers close their doors, the Fed has said.
Economists said any help there is critical because of the rising defaults. Small and regional banks face the greatest risk of severe losses from commercial real estate loans. Federal regulators on Friday announced the biggest bank failure this year, the collapse of Montgomery, Ala.-based real estate lender Colonial BancGroup Inc.
"The larger banks are stabilizing because they went through the stress tests, but many smaller banks are still in deep trouble," said Mark Zandi, the chief economist at Moody's Economy.com.
The TALF, he said, has experienced only limited success in its goal of jump-starting loans to support the market for securities backed by consumer credit cards, auto loans and small-business loans.
"If these markets are not working, then credit does not flow freely to U.S. households and businesses," Mr. Zandi said.
The program got off to a lethargic start, hobbled by rule changes, investor worries about financial privacy and fears that participants might become ensnared in an anti-bailout backlash from the public and Congress.
The TALF has the potential to generate up to $1 trillion in lending for households and businesses, according to the government. Spurring such lending is vital to turning around the economy, but as of Aug. 12, the amount of loans outstanding in the TALF stood at just $29.6 billion.
The Fed and Treasury on Monday said they were prepared to reconsider the decision not to expand TALF to more areas if financial or economic developments merit such action. But the government believes the financial system is beginning to stabilize.
LENDING STANDARDS
WASHINGTON --- The Federal Reserve said Monday that most banks expect their lending to remain tight through the second half of next year.
The Fed's survey of loan officers found that about 20 percent of U.S. banks tightened their lending standards on prime home mortgages in the April-June quarter, down from about 50 percent in the previous quarter and a peak of about 75 percent a year ago.
Forty-five percent of banks say they tightened standards on nontraditional mortgages, down from 65 percent in the April survey and about 85 percent a year ago. About 35 percent of U.S. banks in reported tightening their lending standards for credit cards, down from nearly 60 percent in the previous survey and 65 percent a year ago.
"The report tells us that ... the credit freeze is at least moving in the direction of a thaw," said Joseph LaVorgna, the chief U.S. economist at Deutsche Bank Securities.
-- Associated Press
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