Treasury Shuns Mortgage Purchases in Favor of ABS Revival

Treasury Secretary Henry Paulson on Wednesday pulled the plug on the government's "troubled asset" purchase program, favoring instead the use of taxpayer money to prop up ailing companies and revive the asset-backed securities market, including the securitization of commercial real estate loans. At a press conference, Mr. Paulson said Treasury might make "targeted" purchases of troubled mortgages only. The ABS program, however, would not necessarily include subprime loans, instead focusing on credit card, automobile and student loan receivables, a market that has virtually shutdown. Mr. Paulson did say that if the ABS market is revitalized "new commercial" mortgage loans and even "residential" could be part of the effort. The Treasury secretary, however, was light on details about a revival of ABS. He said the effort would involve "making financing" available to buyers of ABS securities "on a non-recourse basis." Treasury is now designing an ABS program with the Federal Reserve. When President Bush signed the Emergency Economic Stabilization Act in early October, it was assumed that most of the money would be used to buy troubled mortgage-related assets from banks and Wall Street firms. Mr. Paulson said that when the bill was first passed, "Buying illiquid mortgage assets looked like the way to go." For additional coverage of recent bailout developments, American Banker subscribers can click here.