Structured Finance Association Calls on Fed to Support US Consumers, Businesses

Yesterday, Sunday, March 22, the Structured Finance Association sent a letter to Treasury requesting action to establish a liquidity facility available to investors in certain eligible asset-backed securities, named “SPARCC”.  SPARCC is designed to support the asset-backed securities markets in order to keep funding available for the wide segments of our economy that are financed directly or indirectly through asset-backed securities.  This would be similar to the TALF facility established during the 2008-10 financial crisis.  However, unlike the previous crisis, this situation is not primarily driven by consumer credit.  Accordingly, the association proposed support for areas that support small businesses made changes to the proposal, in addition to proposals designed to bolster mortgage and consumer credit during a period of abnormally increased delinquencies or forbearances. This is designed to assist homeowners and consumer borrowers in a time of rising unemployment and distress.  Our Structured Finance team, primarily Rudene Haynes and Tom Hiner, are assisting on the industry task force and we will report further on this as it takes shape. 

 Message from the Structured Finance Association 

 The Structured Finance Association delivered an urgent request to the Federal Reserve Board and Treasury today requesting immediate funding assistance to provide liquidity to support markets, consumers, businesses and the entire economy impacted by COVID-19 mandatory quarantines. 

The proposal details a robust program—Solutions to Power the Advancement and Revitalization of Consumer Credit, or “SPARCC”—which is based on the Term Asset-Backed Securities Loan Facility, TALF, deployed during the 2008 financial crisis. This program should be implemented as soon as possible to address credit needs of American consumers and businesses resulting from the dramatic and rapid economic dislocation brought on by the COVID-19 pandemic. This health event is causing a classic, albeit massive, liquidity crisis in the financial markets that only a central bank is equipped to stop.

With unemployment expected to rise dramatically and many sectors of the economy on virtual lockdown, a meaningful percentage of American households and businesses will have great difficulty making payments on their mortgage, rent, car loans and leases, student loans and other obligations. In response, lenders and servicers are providing assistance to consumers and small businesses through extensive forbearance programs, fee waivers and other flexible repayment programs as quickly and efficiently as feasible. 

SFA’s SPARCC proposal recommends modifications to TALF that reflect the evolution of the securitization market over the past decade. Notably, we recommend the inclusion of legacy securities and an expansion of eligible collateral types that reflect the unprecedented credit needs of consumers and businesses brought on by this national health emergency. Implementation of SPARCC can provide the financing needed to facilitate this ongoing assistance, while also providing certainty to the financial markets.

Read the letter.