Home / News / Market Studies / Firms Say Government’s Asset Relief Program Needs Clarity
Print This Post Print This Post

Firms Say Government’s Asset Relief Program Needs Clarity

Five financial trade associations released the results of an industry survey yesterday which examined more than 400 firms’ views of participation in the federal government's ""Troubled Asset Relief Program"":http://dsnews.comview_story.cfmxid=3009 (TARP). The study found that a majority of financial firms think the Treasury Department's rescue plan lacks much-needed clarity, and nine out of 10 organizations said they were less likely to participate in the ill-defined program because of this ambiguity. Nearly the same number expressed reluctance to cash in on government aid if the Treasury requires firms to issue warrants in return for taking assets off their books.
The survey was sent to members of the Securities Industry and Financial Markets Association (""SIFMA"":http://www.sifma.org), American Securitization Forum (""ASF"":http://www.americansecuritization.com), American Bankers Association (""ABA"":http://www.aba.com), Mortgage Bankers Association (""MBA"":http://www.mbaa.org), and Commercial Mortgage Securities Association (""CMSA"":http://www.cmbs.org) and provides insight into how financial organizations of all sizes assess and evaluate potential TARP participation. George Miller, executive director of ASF, said feedback from the survey should be used by the industry and policymakers to build ""a smart program.""
Initially, Treasury sold the ""$700 billion bailout package"":http://dsnews.comview_story.cfmxid=2971 to Congress as a plan to buy up banks' troubled mortgage assets to free up their balance sheets for renewed lending and economic growth. But, after first promising that it would begin purchasing these ""bad mortgages"":http://dsnews.comview_story.cfmxid=3064 within weeks of the bailout bill's passage in early October, federal officials now realize that the structuring of the program is a much more complex and time-consuming beast. In the interim, the Treasury began doling out $250 billion as ""direct capital injections"":http://dsnews.comview_story.cfmxid=3019 in financial companies, hoping for a more immediate effect on the credit freeze and the financial markets.
In discussing his company's recent survey results, Tim Ryan, president and CEO of SIFMA, told %{=FONT-STYLE: italic}""The Wall Street Journal"":http://online.wsj.com/public/us% that the Treasury needs to return to its original goal of pricing and purchasing troubled assets from banks. ""Our hope is that between now and the inauguration, this does not go into cold storage, because the system can't afford that. We need them to stay focused and make some decisions,"" Ryan said.
%{=FONT-STYLE: italic; TEXT-DECORATION: underline}Additional survey highlights worth noting:%
- Large firms are more likely to participate
- Institutions would prioritize the purchase of subprime and Alt-A residential real estate, followed by commercial real estate, particularly for smaller institutions
- Firms believe whole loans and securities should get roughly equal prioritization
- Firms disclosed that 50-60 percent of their assets are residential related, and those assets comprise both whole loans and securities
- Institutions would sell approximately 50 percent of their assets targeted for TARP at a slight discount to model-based valuations (or current book value if marked to market) but small institutions would require prices closer to cost
- Small institutions are more concerned about uncertainty over future realized losses and large institutions about illiquidity premium
- In addition to commercial real estate, smaller institutions identified Other Real Estate Owned (OREO) and larger institutions identified corporate loans and Collateralized Debt Obligations (CDOs) as having the greatest illiquidity premium and would be the most beneficial to their institutions if purchased by TARP
According to Ryan, ""The industry needed more granular, tangible information on how TARP implementation could be most effective, and this survey provides that guidance to our industry and to policymakers. Given the breadth of the markets, this survey provides some meaningful direction on where regulators' tools might be targeted to be most effective, particularly as it relates to providing price transparency.""
""This survey illustrates the wide array of activities that ought to be undertaken through TARP,"" said John A. Courson, MBA's COO. ""We hope the information contained in the report helps regulators best direct their efforts to provide stability and liquidity to the financial markets.""
To access the full survey results, including detailed graphics of asset breakdowns, ""click here"":http://events.sifma.org/2008/350/files/TARP-Survey-2008-11-05.pdf.

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.
x

Check Also

Dip in Rates Brings Resurgence in Bidding Wars

Redfin’s latest analysis of homebuyer trends has found that bidding wars are heating up as mortgage rates have dipped and the nation’s housing supply remains strained.