Treasury Courts Insurers

"Treasury will approve up to five asset managers with a demonstrated track record of purchasing legacy assets, though we may consider adding more depending on the quality of applications received," officials say.

The fund managers are supposed to raise cash for the funds. Once the private managers come up with private cash, the Treasury Department will match private capital that is locked into the funds dollar for dollar, officials say. The Treasury Department does not to want to match the private capital in cases in which the private investors have "voluntary withdrawal rights."

The companies that want to manage the Legacy Securities funds must have at least $10 billion in "eligible assets" already under management, and they must have the ability to raise $500 million in investment fund capital, according to the securities program application.

Applications are due at the Treasury Department's Office of Financial Stability 5 p.m. April 10.

A second part of the Legacy Securities Program will use "non-recourse loans" from the Federal Reserve to help "eligible borrowers" buy troubled securities.

The participants in this program, which will be part of the Term Asset-Backed Securities Loan Facility, will buy non-agency residential mortgage backed securities that originally were rated AAA and commercial mortgage-backed securities and asset-backed securities that are rated AAA, officials say.

The "haircuts will be determined at a later date and will reflect the riskiness of the assets," officials say.

Like the Legacy Loans Program, the Legacy Securities Program is supposed to free up frozen markets by helping to generate transactions and give participants an idea of how much the assets involved can fetch in a market that is functioning reasonably well, officials say.

Industry Reaction

The American Council of Life Insurers, Washington, still is studying the proposal, ACLI representative Steven Brostoff says.

The ACLI believes the Legacy Securities Program is open to "financial institutions" as defined in Section 101(a)(1) of the Emergency Economic Stabilization Act, Brostoff says.

That "would include insurance companies," Brostoff says. "Also, Treasury specifically mentioned illiquid assets held by insurance companies in its public documents. Thus, it appears that insurers holding certain residential and commercial mortgage-backed securities are eligible to participate in the Legacy Securities Program. However, as noted before, we continue to review the proposal."

Links to government documents describing the program are available here.