Investors Apply For $2.47 Billion In Loans Through TALF Program

Investors applied for $2.47 billion in loans from the Federal Reserve to buy bonds backed by consumer debt, in the eighth round of such funding.

The demand was much smaller than in previous months.

In September, the loan application amount stood at $6.5 billion. August's figure was $6.9 billion. The decrease shows investors are not relying as much on the Fed for funding to buy these securities.

The biggest demand was in floorplan, or retailer inventory loans typically for auto dealers, where investors applied for $912.5 million compared to none in September. This time, investors applied for $224.8 million to buy credit-card loan-backed deals versus $4.4 billion last month and $190.8 million to buy auto-loan-backed deals versus $1.16 billion last time.

The central bank offers loans to investors through its Term Asset-Backed Securities Loan Facility, or TALF, at attractive rates.

Recent issuers have included Harley-Davidson Inc. (HOG), Mercedes Benz Financial, Citi Financial Auto and Ford Motor Co. (F).

The TALF program is credited with boosting the securitization market, especially the portion backed by consumer loans. The central bank is also offering loans to buy commercial mortgage-backed securities. But while there have been no such new bonds issued in over a year, some are said to be in the works. The Fed is also accepting existing CMBS for loans.

The Fed's loans are non-recourse, which means the bank takes the bulk of the loss if the bond purchase goes awry.

-By Andrew Edwards, Dow Jones Newswires; 212-416-2228; [e-mail]