Jump to: Legacy Securities Program Legacy Loans Program

Overview

On March 23, 2009, the U.S. Department of the Treasury ("Treasury"), in conjunction with the Federal Deposit Insurance Corporation ("FDIC") and the Federal Reserve System, announced the Public-Private Investment Program ("PPIP") as part of the broad effort to repair balance sheets throughout the U.S. financial system and ensure that credit is available to households and businesses. 

The coordinated effort between Treasury, the FDIC, and the Federal Reserve is designed to improve the health of financial institutions holding real estate-related assets by increasing the flow of credit throughout the U.S. economy. The PPIP seeks to improve liquidity, promote price discovery, free up capital, and allow financial institutions to engage in new credit formation. The result should be an increased amount of available capital and credit to corporations, small business owners, homeowners, and the American public. Greater accessibility of credit in the U.S. financial system will stimulate economic growth. Furthermore, better clarity about the value of legacy assetsAlso commonly referred to as troubled or toxic assets, legacy assets are real estate-related: loans and securities (legacy loans and legacy securities) that remain on institutions balance sheets that have lost value but are difficult to price due to the recent market disruption  should increase investor confidence and enhance the ability of financial institutions to raise new capital from private investors.

The PPIP consists of two components:

The Legacy Securities Public-Private Investment Program was developed to return liquidity to the markets for previously issued commercial mortgage-backed securities ("CMBS") and non-agency residential mortgage-backed securities ("RMBS"). Non-agency RMBS have balances that may or may not fall within the limits set by the Federal Housing Finance Agency ("FHFA") and do not qualify as collateral for securities that are issued by Ginnie Mae, Fannie Mae, or Freddie Mac.

The Legacy Loans Public-Private Investment Program is a Treasury and FDIC effort to cleanse bank balance sheets from troubled and illiquid loans and other assets.

Three Basic Principles

Using capital allocated from the Troubled Asset Relief Program Section 101(a)(1) of the Emergency Economic Stabilization Act of 2008 ("EESA") authorizes Treasury to establish the Troubled Asset Relief Program to purchase, and to make and fund commitments to purchase, troubled assets from any financial institution.  alongside capital from private investors, the PPIP will generate a large amount of purchasing power to buy legacy assets from the market. The PPIP was designed around three basic principles:

Maximize the Impact of Each Taxpayer Dollar: First, by using government financing in partnership with the FDIC and Federal Reserve as well as a co-investment with private sector investors, substantial purchasing power will be created, making the most of taxpayer resources. Shared Risk and Profits With Private Sector Participants: Second, the PPIP ensures that private sector participants invest alongside the taxpayer, with the private sector investors standing to lose their entire investment in a downside scenario and the taxpayer sharing in profitable returns. Private Sector Price Discovery: Third, to reduce the likelihood that the government will overpay for these assets, private sector investors competing with one another will establish the price of the loans and securities purchased under the program.

How Does the Public-Private Investment Program Affect the Taxpayer?

• Legacy Securities PPIP (click here to learn more)

The Legacy Securities Public-Private Investment Program (“S-PPIP”) is part of the broader Financial Stability Plan ("FSP")A comprehensive plan to stabilize and repair the financial system, and support the flow of credit necessary for recovery., announced in February 2009, which outlines a framework to bring capital into the financial system and address the problem of legacy real estate-related assets.  It will help ensure that credit is available to households and businesses (large and small) and ultimately drive the U.S. toward economic recovery.  The purpose of this program is to draw new private capital into the market for legacy real estate-related assets (i.e., CMBS, RMBS) by providing government equity co-investment and financing on attractive terms issued by the Federal government.  By restarting the market for these assets, PPIP will help financial institutions remove these assets from their books, as well as increase the available credit in the economy.

• Legacy Loans PPIP (click here to learn more)

In order to cleanse bank balance sheets of distressed loans and other assets, the FDIC and Treasury have announced the Legacy Loans Public-Private Investment Program (“L-PPIP”).  The L-PPIP will be designed to attract private capital to purchase eligible assets from participating institutions. Combining public and private sector equity capital and an FDIC debt guarantee, public-private investment fund asset purchases should boost private demand for distressed assets that are currently held by institutions and facilitate market-priced sales of troubled assets.