Troubled Asset Relief Program (TARP): The initial, overarching program created by the Emergency Economic Stabilization Act of 2008 and aimed at shoring up the nation’s financial system. TARP is focused on institutions—infusing banks with government capital or trying to clear their balance sheets of legacy loans—whereas the Term Asset-Backed Securities Loan Facility (TALF) is focused more at restarting the CMBS market. While TARP and TALF are separate programs, they are interactive: TARP funds are used in TALF programs, for instance. TARP also includes other programs, such as the Capital Assistance Program (CAP) and the Public Private Investment Program (PPIP).

Term Asset-Backed Securities Loan Facility (TALF): The Term Asset-Backed Securities Loan Facility (TALF) is basically a loan program for investors of AAA-rated securities, aimed at thawing out the frozen CMBS market. The program has more than $1 trillion in financing available ($900 billion from the Fed and $100 billion from TARP), and the CMBS portion of it is only now beginning to get off the ground. Through TALF, investors can borrow money at very favorable terms for the purchase of AAA-rated CMBS. The government is betting on a big ripple effect to take place through these TALF loans: If investors have more (low-cost) money to invest in CMBS, that should encourage more new loan originations by making the price of new conduit loans more competitive, and giving lenders peace of mind that there’s a market for new issuances.

Public Private Investment Program (PPIP): The Public Private Investment Program marries public capital (both debt and equity financing) with private capital to encourage investors to acquire assets from troubled institutions. The hope is that PPIP will encourage private investment in these assets, thereby freeing up the balance sheets of financial institutions and allowing them to lend again. There are two approaches of PPIP: One has to do with legacy loans, and the other has to do with legacy securities, as held on a bank’s books. By providing low-cost financing to investors, PPIP hopes to bridge the gap between buyers and sellers while also helping to set a market price for these assets. But details of the PPIP are still being ironed out, such as how the assets are valued to determine a bid and how much latitude the banks have in rejecting bids.

Capital Assistance Program (CAP): “Part two” of the stress tests. The Capital Assistance Program (CAP) is a TARP program aimed at ensuring that financial institutions have the capital to keep lending, even in a bad economy. In the aftermath of the “stress tests” done on the nation’s largest banks, CAP makes funds available for those companies that failed the test. Those companies have the option of first raising more capital through the private markets or, failing that, to issue convertible preferred stock to the government through CAP. In essence, the initial TARP money given to financial institutions in the form of preferred equity can now be converted to common equity.

Legacy CMBS Under TALF: Originally, the securities available for the TALF program had to be issued Jan. 1, 2009, or later, and the loans that make up these pools couldn’t be originated before June 1, 2008. The idea was that investors would only be comfortable investing in loans that were made in a period of conservative underwriting such as over the past year. But the Federal Reserve recently announced that AAA-rated CMBS loans issued before Jan. 1 would also be eligible for TALF. The "Legacy CMBS Under TALF" is not a nonperforming asset; it’s just an AAA-rated issuance done before 2009 that is still AAA-rated today. The terms and conditions of the TALF program that apply to new CMBS also apply to legacy CMBS. The Federal Reserve will determine the eligibility of legacy CMBS through a risk assessment process. In other words, any pools with large historical losses, or lots of delinquent loans, or which are not all that diversified by loan size, geography, and property type wouldn’t pass the smell test.

Legacy Loans Program (LLP): The Legacy Loans Program (LLP) concerns whole loans that are on a bank’s books, such as construction or permanent loans. The process begins with banks identifying the pools of loans that it wants to sell. They then send the information to the FDIC, which reviews it to determine what it is willing to guarantee. The FDIC then auctions the pools of loans, and the highest bidder is able to fund 50 percent of the equity requirement of the purchase through the Public Private Investmnet Program, as well as getting access to government debt.

Legacy Securities Program (LSP): The Legacy Securities Program (LSP) makes nonrecourse loans as well as an equity co-investment for the purchase of legacy securities that financial institutions wish to sell. Unlike the Legacy CMBS Under TALF product, these securities don’t need to be AAA-rated today, but they need to have been AAA-rated when they were issued. The LSP is proceeding well, according to industry watchers. Five firms will be selected by early July from a current list of about 15 firms vying to participate in the program.