Fed, Treasury Extend CMBS-Eligible TALF

The Federal Reserve Board and Treasury Department got an early start on financial markets Monday, announcing extensions to a key liquidity program for commercial mortgage-backed securities (CMBS). The regulators extended the deadline for the Term Asset-Backed Loan Facility (TALF) program eligible for legacy CMBS through March 31, 2010. The Fed extended the deadline for the TALF program targeting new issue CMBS through June 30, 2010 “because new CMBS deals can take a significant amount of time to arrange,” according to a joint press release. Fed and Treasury also extended the deadline for new issue asset-backed securities through March 31, 2010 and said they do not anticipate any further additions to the types of collateral eligible under TALF. The TALF CMBS programs, which were set to expire Dec. 31, 2009, garnered vocal support from industry players that said longer timeframes were necessary for the facilities to have a lasting effect. The Fed initiated the TALF program to stimulate lending by allowing private investors to purchase securities with a matching government investment. The reach of the program into CMBS aimed to aid price discovery and provide liquidity for the commercial mortgage market, which faces a credit crisis of its own. The TALF facility set up for legacy CMBS received bids for nearly $670m in July, but the new-issue CMBS TALF facility experienced a slower start. Industry sources for weeks said there would be a growing emphasis on whether the Fed would extend the legacy and new issue CMBS-eligible TALF facilities into 2010. Lisa Pendergast, a managing director at Jefferies & Co., told HousingWire last week it was likely the Fed would have to extend at least one of the programs, although she said the new issue program looked more promising. “The challenge to the Federal Reserve,” Pendergast said, “is to try to stimulate the origination of commercial mortgages, keeping in mind the many challenges posed by the sector, including a lending environment in which credit fundamentals continue to deteriorate and the almost impossible task of efficiently hedging a pool of commercial mortgages during the aggregation stage prior to securitization.” Write to Diana Golobay.