Fed Extends TALF Financing for Commercial Real Estate to Jumpstart Credit Markets

Treasury’s announcement to expand the initial reach of the Term Asset-Backed Loan Facility (TALF) program to include CMBS was widely expected to kick start lending and stabilize the commercial credit markets. Nevertheless, the response from the investor community has been tepid. Under the current structure of the TALF program, on a fixed day each month ("subscription date") borrowers are able to submit the requisite information to the Federal Reserve Bank of New York and request one or more three-year TALF loans under the terms of the TALF program. For the last round of funding, the Federal Reserve Bank of New York lent just $1.7 billion — dramatically less than the $4.7 billion loaned in its first round in March.

As Treasury and Fed officials continue to work through operational details of the expanded TALF program, a number of key commercial real estate groups are asking for the TALF loan terms to be longer than the three years provided under the initial phase of the program.

The TALF program (as well as the PPIP) will be discussed in greater detail as an agenda item for the upcoming Subcommittee meeting during NAR's Mid-year Legislative Meeting (see below for meeting information and “Talking Points”).

Expansion of TALF for Legacy Securities
As a further measure to address the problem of banks' toxic assets, the Treasury and the Federal Reserve have created a lending program that is targeted at the broken market for “legacy” securities tied to residential real estate, commercial real estate, and consumer credit. The intention is to incorporate this program into the previously announced TALF, which may total as much as $1 trillion. Through this expansion, non-recourse loans will be made available to investors to fund purchases of legacy securitization assets. Eligible assets are expected to include certain non-agency AAA rated residential mortgage-backed securities (“RMBS”), commercial mortgage-back securities (“CMBS”) and ABS. Borrowers will need to meet certain eligibility criteria. Detailed terms of the program (lending rates, loan sizes, etc) have not yet been released. As with securitizations backed by new originations of consumer and business credit already included in the TALF, the provision of leverage through this program should give investors greater confidence to purchase these assets, thus increasing market liquidity.

PPIP
As part of the Financial Stability Plan, Treasury also recently unveiled a new "Public Private Investment Program (PPIP)." The PPIP will make targeted investments in multiple "Public Private Investment Funds" (PPIFs) that will purchase legacy real estate-related assets (http://www.treas.gov/press/releases/reports/ppip_whitepaper_032309.pdf )

The Treasury, utilizing funds from the original $700 billion Troubled Asset Relief Plan (TARP), will fund the PPIP. The PPIP will generate $500 billion in purchasing power to buy legacy assets – with the potential to expand to $1 trillion over time. The TARP funds from Treasury will be used to provide equity capital for new investment funds, matched with investments from private investors such as private equity and hedge funds. That public and private equity would be leveraged with credit from the Federal Deposit Insurance Corporation (FDIC), in the case of loan purchases, and the Federal Reserve’s TALF program, in the case of securities.
 
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