From the AP:
The New York Fed has announced modifications to its new Term Securities Lending Facility (TSFL). The TSFL auctions will now allow schedule 2 collateral, instead of the schedule 1 collateral previously proposed. Schedule 2 collateral will now include collaterized mortgage obligations (CMOs) and AAA rated commercial mortgage-backed securities
In other words, they will take any kind of worthless security the banks and security dealers want to pawn off on them.