However, after the substantial losses on residential mortgage-backed securities, and with the economy weakening, investors became wary of all structured securities; spreads on ABS rose sharply and issuance tailed off last fall. Under the Term Asset-Backed Securities Loan Facility (TALF), the Federal Reserve will provide loans against a variety of ABS while the private sector and the Treasury take most of the risk.
Finally, the Federal Reserve has begun making substantial purchases of longer-term securities in order to support market functioning and reduce interest rates in the mortgage and private credit markets. As recently as our March meeting, the FOMC increased the total planned amount of purchases of agency-guaranteed mortgage-backed securities and initiated a program of buying longer-term Treasury securities.