David Wallis, president and chief executive officer of Ambac Assurance Corp. in New York, noted that the company has "considerable experience operating a secondary market guarantee program, similar to that which TARP seeks to implement." Based on that experience, he argued the program should include mortgage backed securities, or MBS, in a proposed guarantee program.

Jay Brown, chairman and CEO of Armonk, N.Y.-based MBIA, echoed that sentiment. "Financial guarantee insurance policies and/or credit default swaps issued by financial guarantors with respect to pools of such assets should also be accepted" into the TARP program, he told the Treasury.

Susan Comparato, the acting president and CEO of Syncora Holdings Ltd., said in another comment letter that the program should be focused on guaranteeing payments made at the "MBS level," particularly for residential MBS and even more so for those "that are held by U.S. institutions and are included in or referenced in leveraged transactions or multiple transactions or both."

Monoline insurers, she noted, provide guarantees on exactly such securities, among others, and have seen their financial position impaired by the loss reserves required to be held.

By focusing at the lower level, she said, rather than for the derivatives that reference them, the Treasury would be able to back up all of the products at once.

Ms. Comparato also noted that such an approach would strengthen the monoline insurers that have provided guarantees on those obligations.

"The increased financial strength will have a direct effect on the value of the guarantees already provided by the monolines, and on future guarantees, on all types of credit products, particularly municipal bonds," Ms. Comparato noted with an emphasis on the municipal bonds.

"This will not only affect the value of the municipal bonds but will also have significant impact on the ability of U.S. municipalities to raise the needed funds in the bond markets," she added.

Mr. Wallis suggested the Treasury create a "risk sharing" program that would effectively limit losses on portfolios above a threshold for monolines whose "credit ratings have been threatened and whose access to the capital markets has been denied due to the potential volatility of the performance of their portfolios."

Such a structure should include an "attachment point" at which the program would take effect, and would require the participating entity to share in the loss, he suggested.

"By effectively placing a cap or ceiling on losses for the MBS portfolio holder, investor confidence should be increased, credit ratings should be stabilized, and capital should be freed up to permit credit to flow into the economy," Mr. Wallis said.