Congress Urges Broader TALF Timeline for CMBS

Rep. Paul Kanjorski, D-Pa., and Rep. Gary Miller, R-Calif., issued a letter Friday to Treasury Department secretary Tim Geithner and Federal Reserve chairman Ben Bernanke, urging an extension of the Term Asset-Backed Securities Loan Facility (TALF) for commercial mortgage-backed securities (CMBS) through next year. Kanjorski, the chairman of the House Financial Services Subcommittee on Capital Markets, and Miller, the Ranking Republican on the House Financial Services Subcommittee on International Monetary Policy and Trade, said the extension is necessary for the CMBS TALF to have a lasting effect. “The $6trn commercial real estate market has recently experienced a massive credit shortfall, which the TALF program has only just begun to help stabilize,” Kanjorski said in a statement on the letter. “While I would like to wind down the government’s emergency support for the private sector as quickly as possible, we need to provide more time for the TALF program to work in this industry, especially with $1trn in commercial real estate debt maturing in the near future.” Of $3trn in the commercial real estate debt market, more than $1trn of loans are set to mature during the next few years, the letter notes. An extension of the CMBS TALF may be the lifeline needed to keep the CMBS market going. The program is set to expire on Dec. 31, 2009, but Kanjorski and Miller — and supportive industry groups — are pushing for an extension through Dec. 31, 2010. “Given sufficient time, we believe that [CMBS TALF] will be instrumental in helping to restart the CMBS market and in enhancing liquidity in the commercial real estate market,” Kanjorski’s letter reads, in part. “Due to the lead time necessary to assemble TALF-eligible CMBS transactions, however, the program’s remaining term does not permit adequate time to develop sufficient volume to address the massive credit shortfall in the sector.” The letter points toward expanding issuance in the asset-backed securities market since the beginning of TALF. And while the CMBS branch seems off to a slow start with no deals priced in its initial funding date and only $669m requested on the July facility, it is also a relatively new program, and one that ought to be given more time to develop, according to the letter. “The underwriting process for CMBS deals is relatively lengthy, and it takes approximately four to five months to bring a CMBS deal to market,” the letter notes. “Assuming that the TALF expires in December, the last opportunity a borrower would have to begin the TALF process for new deals would be in mid-August.” At least one industry group agrees that’s just too soon. The Commercial Mortgage Securities Association (CMSA) issued a statement supporting the expansion. CMSA president Patrick Sargent noted spreads on CMBS have tightened lately and private lenders and investors are edging back into the market. “We are just beginning to see applications for TALF-backed loans from investors who are critical to private lending, so there is a crucial window of opportunity to revitalize the commercial mortgage sector,” Sargent said. Write to Diana Golobay.

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