The U.S. Federal Reserve Board and the U.S. Treasury Department are extending the Term Asset-Backed Securities Loan Facility (TALF) into 2010, in an effort to improve credit flow.

In Monday’s announcement, the Fed and Treasury note that conditions in financial markets “have improved considerably” in recent months. However, they add that the markets for asset-backed securities based on consumer and business loans and for commercial mortgage-backed securities “are still impaired and seem likely to remain so for some time”.

Therefore, to promote the flow of credit and to facilitate the financing of commercial properties, the Fed and Treasury approved extending TALF loans against newly issued ABS and legacy CMBS through March 31, 2010, and against newly issued CMBS through June 30, 2010. The program was due to expire at the end of this year.

“The Board will continue to monitor financial conditions and will consider in the future whether unusual and exigent circumstances warrant a further extension of the TALF to help promote financial stability and economic growth,” they said. However, they also say that they don’t anticipate any further additions to the types of collateral that are eligible for the facility.

In response to the decision, the Securities Industry and Financial Markets Association and the American Securitization Forum issued a statement of support. “TALF has played a vital role in restarting the securitization markets, which fund a substantial portion of consumer and business credit. The industry applauds the decision announced today by the Federal Reserve Board and the Treasury Department to extend TALF into next year, providing a longer timeframe for the program to achieve results, especially in those sectors of the market that require additional time to recover, such as the commercial mortgage-backed securities market which is just beginning to show signs of improvement,” they say.

“The program has been a significant success in those parts of securitization markets where it has been applied, helping to reduce financing costs across asset classes, attracting participation by a wide range of issuers and investors, improving liquidity, and contributing to a restoration of confidence and function to the asset securitization market generally. The recovery of securitization is vital to the continued availability of affordable consumer and business credit, and to overall economic recovery and growth, and we strongly support extension of the TALF program,” they add.

IE