Find all School-related info fast with the new School-Specific MBA Forum

It is currently 21 Oct 2014, 04:34

Close

GMAT Club Daily Prep

Thank you for using the timer - this advanced tool can estimate your performance and suggest more practice questions. We have subscribed you to Daily Prep Questions via email.

Customized
for You

we will pick new questions that match your level based on your Timer History

Track
Your Progress

every week, we’ll send you an estimated GMAT score based on your performance

Practice
Pays

we will pick new questions that match your level based on your Timer History

Not interested in getting valuable practice questions and articles delivered to your email? No problem, unsubscribe here.

Events & Promotions

Events & Promotions in June
Open Detailed Calendar

Wall Street Wants Student Debt as Collateral for Fed

  Question banks Downloads My Bookmarks Reviews Important topics  
Author Message
Senior Manager
Senior Manager
User avatar
Joined: 30 Jul 2007
Posts: 385
Location: Europe
Schools: St. Gallen '09
Followers: 6

Kudos [?]: 56 [0], given: 5

Wall Street Wants Student Debt as Collateral for Fed [#permalink] New post 07 Apr 2008, 12:19
the following is an interesting development.

http://www.bloomberg.com/apps/news?pid= ... refer=home

Wall Street Wants Student Debt as Collateral for Fed (Update1)

By Sarah Mulholland

April 7 (Bloomberg) -- Wall Street is pressing the Federal Reserve to take bonds backed by student loans as collateral in its new lending facility to stem a slump in demand for the debt that's driving lenders to stop writing loans.

The American Securitization Forum and the Securities Industry and Financial Markets Association asked for acceptance of AAA rated securities in an April 2 letter to the Federal Reserve Board and the Federal Reserve Bank of New York.

The lobbying effort follows the central bank's willingness to take on more mortgage-related debt to unfreeze the market for asset-backed securities. Student loan companies are paying more to raise money as investors shun the securities, after a collapse of credit markets last year that began with record losses on subprime-backed debt. CIT Group Inc., NorthStar Education Finance Inc. and Brazos Higher Education Service Corp. are among companies that suspended new originations.

``There is a big concern among a lot of originators that there will not be enough capital available for all eligible students to receive government-subsidized loans,'' Tom Deutsch, deputy executive director of the American Securitization Forum said in a telephone interview today from New York.

The Term Securities Lending Facility was created last month by the Fed to pump money into financial markets by extending credit to primary dealers of U.S. government debt.

Stopped Writing Loans

Among the collateral it accepts are AAA rated private label residential and commercial mortgage backed securities as well as collateralized mortgage obligations not on review for downgrade and backed by Fannie Mae, Freddie Mac or government agency Ginnie Mae, according to a chart on the New York Fed's Web site.

``We don't have anything, beyond what's already out there, to say about the collateral,'' New York Fed spokesman Andrew Williams said.

At least 40 lenders have ceased writing some form of student loans as the cost of raising money in the asset-backed market has skyrocketed, according to a report from UBS AG. Sales of bonds backed by student loans have dropped 65 percent this year compared with the first quarter of 2007, the analysts led by Laurie Goodman in New York said.

Legislative changes enacted last September increased the costs for student loan companies to originate new loans under the Federal Family Education Loan Program. More than 85 percent of loans originated under the program were financed in the asset-backed market, according to the letter from the securities groups.

Applications Due

About 6.7 million students and parents are expected to apply for a loan under the program in coming months, the letter said, noting that three-quarters of all student loan volume is originated between April and September.

Bonds backed by student loans are losing value for the first time since at least 1999 as competing investments offer higher yields and banks tighten terms on lending against the securities.

Securities with student loans as collateral have fallen 4.2 percent this year after recording their first back-to-back monthly decline in February and March, according to a Merrill Lynch & Co. index of 186 issues from Reston, Virginia-based SLM Corp. that began nine years ago.
Wall Street Wants Student Debt as Collateral for Fed   [#permalink] 07 Apr 2008, 12:19
    Similar topics Author Replies Last post
Similar
Topics:
The formula that killed Wall Street yellowjacket 0 24 Mar 2009, 12:50
The End of Wall Street - article isa 3 02 Jan 2009, 18:11
5 Wall Street: Profiles in Panic agold 10 04 Dec 2008, 14:22
4 The end of wall street pguard 12 25 Nov 2008, 15:47
Wall Street Trader RobKao2005 1 16 Feb 2005, 12:27
Display posts from previous: Sort by

Wall Street Wants Student Debt as Collateral for Fed

  Question banks Downloads My Bookmarks Reviews Important topics  


GMAT Club MBA Forum Home| About| Privacy Policy| Terms and Conditions| GMAT Club Rules| Contact| Sitemap

Powered by phpBB © phpBB Group and phpBB SEO

Kindly note that the GMAT® test is a registered trademark of the Graduate Management Admission Council®, and this site has neither been reviewed nor endorsed by GMAC®.