WASHINGTON -- The slow-moving federal effort to revive consumer lending -- an unfulfilled source of hope for struggling auto dealers -- is raising concerns from a congressional watchdog.
The Congressional Oversight Panel, created by lawmakers to monitor the $700 billion bailout, said in its latest report that the Term Asset-Backed Loan Facility may pose undue risk to American taxpayers.
The program, which seeks to spur credit for car purchases, college loans and the like, also may subsidize a few hedge funds with little at stake in the investments, the panel said in a letter to the U.S. Treasury Department.
Treasury Secretary Timothy Geithner is scheduled to testify Tuesday, April 21, before the panel, which is headed by Harvard law Professor Elizabeth Warren.
Those are concerns of some of our members, and they may be among the questions asked of Mr. Geithner, panel spokeswoman Shanan Guinn said in an interview yesterday.
Some panel members also have other unresolved questions, including whether the loan program is moving quickly enough and whether the complex financial instruments being used have enough controls on them, Guinn said.
The TALF program was launched in November to lend up to $200 billion to investors buying securities backed by consumer and small-business loans.
Hedge funds and other investors were allowed to borrow from the central bank on favorable terms, and they were to use the cash to buy newly issued securities backed by auto loans and other financing.
In February, the Treasury Department said it could expand the program to $1 trillion. It also said it would start accepting as collateral leases for car-rental companies, loans to auto dealers and other types of securities.
The watchdog panel raised concerns in a March 20 letter attached as an appendix to a 150-page report the panel released April 7.
In a response to the letter, Federal Reserve Chairman Ben Bernanke said TALF could translate to lower credit card and auto loan rates for consumers.
The program includes a number of taxpayer safeguards, including requirements that borrowers provide collateral and an equity stake to cover any unpaid loans, Bernanke wrote in his April 1 letter.
Potential borrowers -- including hedge funds, private equity funds, pension funds and mutual funds -- are subject to certain legal and compliance standards, he said.
Treasury and Federal Reserve spokesmen did not immediately respond to requests for comment.
The National Automobile Dealers Association has expressed hope that TALF will give dealers significant help by providing capital to lenders who can, in turn, extend financing to dealers.
But so far, dealer hopes have been dashed.
Of the $6.4 billion in TALF loans completed since March 25, $2.7 billion has gone to back up consumers auto loans, according to the Congressional Oversight Panel, citing the Federal Reserve of New York.
None has been provided to back up floorplan financing for auto dealers, who would use it to buy vehicles from manufacturers.
This is a major, major regulatory priority for us, Paul Metrey, NADA director of regulatory affairs, said in an interview. Without this credit, we dont believe dealers can return to the situation where they were several years ago.
TALF funds AAA-rated securitizations, in which loans are bundled together and sold to institutional investors and financial institutions. But floorplan securitizations -- in which lenders bundle dealer loans into asset-backed securities -- are rated below investment grade.
NADA has met numerous times with Treasury and Fed officials to ask them to loosen this standard, Metrey said.
Weve made the case that floorplan loans generally work well, the losses are small and that there are multiple layers of protection against default, he said.
Dealers typically obtain floorplan loans from captive finance companies, national and regional banks and credit unions. The lenders obtain their capital from a variety of sources including securitized loans.
The average floorplan loan for a dealer is $4.9 million, and dealers as a whole hold about $100 billion in floorplanned inventory, NADA said.
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