To what values will the haircuts be applied to determine the maximum loan amount?
Under the TALF, the New York Fed will lend to each borrower an amount equal to the lesser of the par or market value of the pledged ABS minus a haircut. Alternatively, when the pledged ABS has a market value above par, the New York Fed will lend an amount equal to the market value — subject to a cap of 110 percent of par value — minus a haircut, and the borrower will periodically prepay a portion of the loan. The prepayments will be calculated to adjust for the expected reversion of market value toward par value as the ABS matures.