UPDATE:American Home Mtge Servicing's $600 Million Deal TALF Eligible

American Home Mortgage Servicing Inc. is offering a $600 million deal that is eligible for funding under a Federal Reserve program, according to a person familiar with the matter.

This is the latest deal being shopped ahead of the next loan application deadline for the central bank's facility to boost the consumer loan-backed market on Oct. 2.

The eighth loan application deadline for the Fed's Term Asset-Backed Securities Loan Facility, or TALF, is Friday and investors can procure cheap loans from the central bank to buy newly created consumer loan-backed securities.

American Home Mortgage's bond is backed by servicing advance receivables. As per the program's terms, "such receivables must be related to residential mortgage loan securitizations that grant the servicer first priority in any insurance or liquidation proceeds from a loan."

Joint leads on the deal are Deutsche Bank and RBS.

Harley-Davidson Inc. (HOG) also has a $700 million asset-backed securities deal eligible for the program, according to a term sheet. Other issuers tapping the market ahead of this deadline include Ford Motor Co. (F) with a $1 billion bond and Citi Financial Auto with a $1.40 billion auto-sector deal.

For years, consumer loans were packaged together into bonds and sold to other investors in a process known as securitization. Lenders took cash from these bonds and made new loans, helping lower the cost of borrowing for consumers. This efficiently ramped up credit and helped fuel the lending boom that came to an abrupt halt with the credit crisis. The Fed has helped prop up this market with TALF.

More than $100 billion in such deals have been sold since the launch of the TALF program in March, with the bulk being eligible for the central bank's facility. Auto-sector deals comprise the majority of issuance, followed by credit card debt-backed bonds.

Last week, Mercedes-Benz Financial offered a $1.08 billion prime retail auto loan-backed deal, according to a person familiar with the matter. That deal, called MBART 2009-1, has four tranches and is also eligible for TALF funds.

About $15 billion in bonds sold in the last round of loan applications in September. Issuers included American Express Co. (AXP) and Citigroup Inc. (C) in the credit card-backed sector, and Nissan Motor Co. (NSANY), Ford and Hyundai (HYMLY) in the auto sector.

When the program was first launched, deals worth $8.3 billion were sold despite investor concern over lengthy documentation and other legal requirements.

The attractive terms of the program, where investors can walk away from the loans if anything goes awry, have drawn investors to a market that virtually shut down after the collapse of Lehman Bros., when investors grew wary of asset-backed securities deals.

Issuers have also offered deals that are not eligible for TALF funding: last week, JPMorgan Chase & Co. (JPM) sold a credit card loan-backed deal that investors bought without using TALF money. Avis Budget (CAR) also sold a $450 million 3.18 year non-TALF bond.

TALF also includes funding for existing and new commercial mortgage-backed securities. That portion of the program started later than the consumer loan-backed portion, which was launched in March.

The program has been extended into next year. TALF loans against newly issued asset-backed securities and existing commercial mortgage-backed securities will be extended through March 31, 2010. For newly issued CMBS, which take a long time to put together, the extension is until June 30, 2010. The TALF program could total $1 trillion.

-By Anusha Shrivastava, Dow Jones Newswires; 212-416-2227; [e-mail]