Treasury Eyes TARP Asset Suggestions

Treasury Department officials will have to decide how broad it wants to make its loan guarantee program as commenters are suggesting it could be used for almost any troubled assets - mortgages, auction rate securities, collateralized debt obligations and insurance-linked securities. The American Securitization Forum and the Securities Industry and Financial Markets Associations "believe the guarantees should be considered for use for a full spectrum of financial assets." However, it could be used to guarantee single-family mortgages to promote loan modifications, the two Wall Street trade groups say in a comment letter. The American Bankers Associations and the Mortgage Bankers Associations contend the guarantee program should be used to insure against losses on residential and commercial mortgages, not mortgage-backed securities initially. "The program can be expanded to include residential and commercial MBS once the challenges in structuring such a program for securitized products have been addressed," MBA says in its comment letter. The law firm Kelley Drye & Warren recommends that Treasury use the guarantees so small and mid-size institutions can pool performing mortgages. "The guarantee program should initially focus on promoting stability in the market for performing assets that are not severely distressed," partner Paul Keenan commented.