The comprehensive financial plan to be announced Tuesday by Treasury Secretary Tim Geithner will include an expanded loan facility that will purchase newly issued and newly rated Commercial mortgage-backed securities and private-label mortgage-backed securities, all AAA rated, CNBC has learned.
Similar to the first Term Asset-Backed Securities Loan Facility, the expanded TALF will also use funds from the Treasury's Troubled Asset Relief Program to absorb the first losses along with lending from the Federal Reserve.
The size of the new program could not be determined, but is expected to be in the hundreds of billions of dollars. Before the implosion of credit markets, the private sector was responsible for about half of the lending in the $12 trillion U.S. mortgage market. That market is virtually frozen now.
The package includes a foreclosure mitigation plan which would gather ideas from the private sector, Congress and the Obama administration. New sums of money needed for the Treasury's plan will not be funded by taxpayers, sources said.
The recently announced TALF program is set to loan up to $200 billion to finance newly issued credit card, auto, student and small business loans. Under the program, which has yet to begin, $20 billion of TARP funds will absorb the first losses from defaults in those loans. It is unique because all U.S. financial institutions, including hedge funds and insurance companies, are eligible for the low interest-rate loans from the Fed.
Previous Fed lending programs were restricted to investment and commercial banks. The new program will include an allocation from the second half of the $700 billion TARP to absorb losses that could be incurred by the Fed.
The announcement of Geithner's plan is widely anticipated, but has been delayed to allow Congress to focus on economic stimulus legislation, the Treasury Department said Sunday.
"The Senate votes on Monday, and economic officials administration wide will be working and consulting with senators throughout the day," the Treasury Department said in a statement.
"Secretary Geithner will postpone the release of the administration's Financial Stability and Recovery Plan until Tuesday to allow for that to happen," the Treasury added.
The government is hoping that the economic stimulus plan with work together with Geithner's plan to stem the financial crisis.
Although the Treasury has not revealed the details of the plan yet, there is much speculation about elements of the plan.
In addition, to the report of the expanded TALF, the announcement is expected to cover a number of aid measures to financial firms, including the purchase of toxic assets at the heart of the crisis, a revised cash-for-equity program and government guarantees on other bad assets held in firms, a source familiar with the government's planning told CNBC.
CNBC has also learned that officials are likely to indicate that the government has approved capital injections to insurance companies with thrift-structured lending units that have applied for government aid under the TARP program.
Thus far only AIG has received funding under the program, but that happened after the government amended various terms of its original aid package, which came in the emergency environment of last September before the TARP was created.
If the Treasury does take such a step with insurance companies, Genworth Financial , Lincoln National and Hartford Financial Services Group would be first, according to the source.
Other measures in the bill would focus on aid to small businesses and consumers.
Banks worldwide have been laid low by huge losses on U.S. mortgage-related debts. The scarcity of credit is choking the U.S. economy, which is mired in a deepening recession.
The Bush administration used an initial bailout program, passed in the fall, primarily to inject capital into banks in order to keep them from crumbling.
Obama's team weighing how to use the remaining funds and is now turning its efforts to cleaning up the "toxic" assets clogging the financial system.
The head of Obama's Council of Economic Advisers, Christina Romer, noted on CBS' "Face the Nation" that $50 billion would be used to help people with distressed mortgages.
"We do know that any package to get the economy healthy is going to be more effective if we get the banks healthy, because we've got to get them lending again," Romer said.
Geithner told Democrat lawmakers on Saturday that the adminstration would require banks getting public aid under a new rescue plan to help struggling homeowners by reworking their mortgages, Democratic sources said.
-Reuters contributed to this report.
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