Treasury Unveils Details of New Public-Private Investment Program The Treasury Department today issued details on its Public-Private Investment Programs in conjunction with the FDIC and the Federal Reserve Board to buy troubled mortgage loans and mortgage-backed securities from banks. The programs will use $75 billion to $100 billion in Troubled Asset Relief Program funds and capital from private investors to generate $500 billion to purchase troubled assets, with the potential to expand to $1 trillion over time. The PPIP has two components: a “Legacy Loan Program” and a “Legacy Securities Program.” The Legacy Loan Program would encourage private investors to buy loans from banks in the following way:
A bank would assemble a pool of residential mortgage loans it is seeking to divest. For example, assume the mortgages have a face value of $100.
The FDIC would determine the amount of funding it would guarantee, not to exceed a 6-to-1 debt-to-equity ratio.
The pool would be auctioned by the FDIC to private sector bidders. The highest bidder -- in this example, $84 -- would form a Public-Private Investment Fund to purchase the pool.
Of the $84 purchase price, the buyer would receive financing by issuing debt guaranteed by the FDIC of $72, leaving $12 of equity.
Treasury would then provide 50 percent of the equity funding required on a side-by-side basis with the investor. In this example, Treasury and the investor would each invest $6.
The private investor would manage the servicing of the asset pool and the timing of the sale of the pool, with oversight by the FDIC.
The Legacy Securities Program consists of two related parts to draw private capital into the mortgage-backed securities market by providing debt financing from the Federal Reserve under the Term Asset-Backed Securities Loan Facility and through matching private capital.
Eligible assets are expected to include certain non-agency residential mortgage-backed securities that were originally AAA-rated and outstanding commercial mortgage-backed securities and asset-backed securities that are AAA-rated.
Treasury will launch the application process for managers interested in the program.
A fund manager would submit a proposal and is pre-qualified to raise private capital to participate in joint investment programs with Treasury.
The government agrees to provide a one-to-one match for every dollar of private capital that the fund manager raises.
For example, the fund manger raises $100 of private capital. Treasury provides $100 equity co-investment and provides a $100 loan to the Public-Private Investment Fund. Treasury will also consider an additional loan up to $100 to the fund.
The fund manager has $300 (or possibly $400) in total capital with which to purchase the securities.
The fund manager has full discretion in investment decisions, but will predominantly follow a long-term buy-and-hold strategy. The investment fund would be eligible to take advantage of the expanded TALF program for legacy securities when it is launched.
Materials released by Treasury today stated that executive compensation restrictions will not apply to either the Legacy Loan Program or the Legacy Securities Program. Additional details of the programs will need to be fleshed out through rulemakings, which Treasury expects will be commenced soon.
Treasury said that by coupling government financing with private investments, the Public-Private Investment Program maximizes purchasing power; ensures that risks and rewards are shared among taxpayers and private sector participants; and reduces the likelihood that the government will overpay for assets by letting the private sector competition price out the assets. “This approach is superior to the alternatives of either hoping for banks to gradually work these assets off their books or of the government purchasing the assets directly,” Treasury said in its announcement.Read Treasury’s fact sheet.
Other Treasury links of note:Legacy Securities Summary of TermsLegacy Securities FAQsApplication for Private Assets ManagersLegacy Loans Summary of TermsLegacy Loans FAQs
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Karen: I continue to try to get in touch with you or Patsy regarding the unsatisfactory state of the way my ceiling was painted. Unfortunately, I've been put in the position of feeling like I'm being ignored at this point. Although I hope this is not the truth I can't help feeling taken advantage of - I paid her $1600.00 cash to paint my house before I moved in - she missed the walk-in closet completely and did not cover the peak of the cathedral ceilings correctly. You can still see the black wall underneath.
ReplyDeleteI paid good money, on your recommendation, to allow Patsy to take this job. I realize I was in an emotional state during the time of purchase and closure (because of the divorce), I can't believe you or she would take advantage of me in this way.
I've had nothing but trouble from this house since I bought it from you. If I do not receive a response to this email by week's end I intend to take legal action. I have given Patsy ample time to resolve this issue.
I'd appreciate a call or email to confirm receipt of this email to you.
April Williamson