Industry Survey Provides Insights on TARP

Five financial trade associations last week unveiled an industry survey which examined more than 400 firms’ views of participation in the Troubled Asset Relief Program (TARP).

The survey was sent to members of Securities Industry and Financial Markets Association (SIFMA), American Securitization Forum (ASF), American Bankers Association (ABA), Mortgage Bankers Association (MBA) and Commercial Mortgage Securities Association (CMSA) and provides new insights into how financial organizations of all sizes assess and evaluate potential TARP participation.

"The industry needed more granular, tangible information on how TARP implementation could be most effective, and this survey provides that guidance to our industry and to policymakers. Given the breadth of the markets, this survey provides some meaningful direction on where regulators' tools might be targeted to be most effective, particularly as it relates to providing price transparency,” said Tim Ryan, president and CEO of the Securities Industry and Financial Markets Association.

“This survey will provide the industry and policymakers with information that will be useful in building a smart program,” said George Miller, executive director of the American Securitization Forum.

“This survey illustrates the wide array of activities that ought to be undertaken through TARP,” said John A. Courson, chief operating officer of the Mortgage Bankers Association. “We hope the information contained in the report helps regulators best direct their efforts to provide stability and liquidity to the financial markets.”

The survey found:

• Large firms are more likely to participate
• Institutions would prioritize the purchase of subprime and Alt-A residential real estate, followed by commercial real estate, particularly for smaller institutions
• Firms believe whole loans and securities should get roughly equal prioritization
• Firms disclosed that 50-60% of their assets are residential related, and those assets comprise both whole loans and securities
• Institutions would sell approximately 50% of their assets targeted for TARP at a slight discount to model-based valuations (or current book value if marked to market) but small institutions would require prices closer to cost
• Small institutions are more concerned about uncertainty over future realized losses and large institutions about illiquidity premium
• In addition to commercial real estate, smaller institutions identified Other Real Estate Owned (OREO) and larger institutions identified corporate loans and Collateralized Debt Obligations (CDOs) as having the greatest illiquidity premium and would be the most beneficial to their institutions if purchased by TARP

The survey can be found by clicking here.