Fed Extends TALF Program for Commercial Real Estate

They still cant just let commercial real estate fail, prices for commercial real estate are still inflated and still need to come down 30-50%. Extending the Talf will only delay the process further. The higher the default rate the better the prices for a new small business to start a small store front. Why do they insist trying to put a floor in on both the housing and commercial real estate as being a good thing. As for the $8000 tax credit that expires in november 2009, they will also extend that as well, they will probably extend it and increase it till the middle of 2010.



Fed Extends TALF Program for Commercial Real Estate

By Scott Lanman

Aug. 17 (Bloomberg) -- The Federal Reserve extended by three to six months an emergency program aimed at restarting credit markets, a move that may cushion the commercial real- estate industry from rising defaults and falling prices.

The Term Asset-Backed Securities Loan Facility, with a capacity of as much as $1 trillion, will expire June 30 for newly issued commercial mortgage-backed securities, instead of Dec. 31, the Fed and U.S. Treasury said today in a statement in Washington. For other asset-backed securities and CMBS sold before Jan. 1, the plan was extended three months to March 31.

Commercial property values have fallen 35 percent since peaking in October 2007, according to Moody’s Investors Service. The extension may help firms such as Vornado Realty Trust, which is considering the sale of commercial MBS through the TALF. Almost $165 billion of mortgages for skyscrapers, shopping malls and hotels are due this year.

While financial-market conditions “have improved considerably in recent months,” the markets for ABS and CMBS “are still impaired and seem likely to remain so for some time,” the Fed and Treasury said.

The central bank said it doesn’t intend to make other types of collateral eligible for the program, indicating officials rejected adding residential mortgage-backed securities after considering such a move for several months. The Fed didn’t rule out a future expansion.

Door Open

Policy makers also left the door open to prolonging the program beyond the new expiration dates, saying they “will consider in the future whether unusual and exigent circumstances warrant a further extension.”

While extending the TALF, the Fed is trimming or ending other emergency programs. Last week, officials decided to phase out their $300 billion of Treasury-bond purchases through the end of October. The Fed has reduced sales of Term Auction Facility loans to commercial banks by one-third and is letting a money-market lending program end in October.

In June, the Fed extended other emergency-loan programs by three months to Feb. 1.

“The Fed realizes that the markets are getting better but are not yet healthy enough to stand on their own,” said Scott Buchta, a Chicago-based strategist at Guggenheim Capital Markets LLC. The June extension for new CMBS “shows that they feel that market may take a bit longer to get up and running again,” Buchta said.

Restart Market

The Fed began the TALF in March to restart the market for securities backed by auto, credit-card and education loans. In June, the Fed expanded the program to cover as much as $100 billion in loans to support commercial mortgage-backed securities.

Under the plan, the Fed lends to investors to purchase new asset-backed securities as well as commercial real-estate debt.

TALF loans have helped reduce borrowing costs in some markets. The gap, or spread, on top-rated securities backed by consumer loans relative to benchmark interest rates has fallen as much as 2.15 percentage points to 0.60 percentage point since the TALF started in March, JPMorgan Chase & Co. data show.

Since March, the spread on AAA debt backed by commercial real estate has plunged 7.2 percentage points to 4.6 percentage points more than U.S. Treasuries, according to Barclays Capital.

Citigroup Inc., Ford Motor Co. and JPMorgan Chase are among companies that have sold auto and credit-card debt through the TALF. Brookfield Properties Corp. is “thinking about” using the emergency program, Chief Executive Officer Richard Clark said July 29.

Shield From Losses

As of Aug. 12, the Fed’s loans under the program totaled $29.6 billion. The central bank gave the TALF an initial capacity of $200 billion, backed by $20 billion of funds from the Treasury’s Troubled Asset Relief Program to shield the Fed from losses. In February, the Fed and Treasury said the TALF could grow to as much as $1 trillion.

The commercial real-estate industry had asked for an extension of the TALF deadline, saying the program needed more time to get going. The lag time of three to four months to package loans into mortgage-backed securities means that September or October would be the effective end date if the TALF expired in December, according to Jeffrey DeBoer, president of the Real Estate Roundtable, a Washington-based trade group.

Also, 41 House members -- including Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, and Carolyn Maloney, a New York Democrat who heads the Joint Economic Committee -- signed a July 31 letter to Bernanke seeking a one-year extension through December 2010 and asking for a decision by mid-August.

‘Reasonable Chance’

TALF loans for older CMBS have a “reasonable chance” of being extended past March, said Aaron Bryson, an analyst at Barclays Capital in New York.

New York Fed President William Dudley said in June that “there’s a huge administrative hurdle” to expanding TALF to cover residential MBS because each security is different and must be separately evaluated for the size of the haircut that should be applied. The haircut is how much capital investors put up for the Fed loan.

Separately, the Fed is buying as much as $1.25 trillion of residential MBS this year to lower interest rates in housing.

 

Yawn.

 

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Delaying the inevitable crash, just like with RMBSs.

The government is distorting markets, delaying equilibrium, clouding outlooks, and doing irreparable damage.

The forest fire never allowed to burn leads to a massive inferno, eventually.

 

It looks like the banks just have too much of this, and the fed is trying to head them off at the pass, so the banks get to release their bad shit onto the fed, and in turn get more free money to have their way with the markets some more, while simultaneously keeping those asset prices marked artificially aloft.

That outta buy them another quarter of two of inflated earnings off of easy money.

Amazing what can be accomplished with the stroke of a pen.

In reviewing the market over the past two years, the only times it has risen, were all as a result of direct fed policy. Its like the market cannot lift of its own volition, and requires intervening actions to 'make it go'. This of course includes numerous instances of (surprise) goosings at / near expirations.

 

Worse sell of of 2% since this market rallied. Could the RE on the Commerical End be the final show to take the market past its lows to finally caused by a panic sell?

China pouring 17 billion in oil for what reason? Cause they can't dumb the dollar so might as well hedge. They see the markets and the dollar heading for a deep fall.

Hard Assets......the smart ones have already built heavy positions. Even RE has some great buys right now.

There will be another grand buying opportunity in Oil before it heads up to 100.

Lets see if the Market rally mimics the Depression Erra Rally. Not sure if it will, could just be the start of a healthy correction, even with all the Bad news on Financials, consumer spending and Commerical RE.

 

in recession their is less demand for oil.

as fars i know market manipulation in an attempt to increase price is illegal. it's call market collusion. monopolies are illegal in a free market system. high oil prices causes the consumer to pay more so it's bad for the economy. consumers are paying an arm and leg for gasoline where itis not worth owning a car cause the gas payment is more than monthly payment on a new car. there will just less demand for cars...no need for cash for clunkers...the cheaper to own a car the more demand for cars.

the saudis and middle east need the volume are oil revenues today. they know the higher the price less oil is sold.

currencies are the only market where inside trading, insider information and even currency fixing is standard business practice.

houses in the low end price are selling fast and lots of volume in cheap homes that people can afford. those guys thinking a 25% discount on a 10 million dollar home is cheap are fools it's still freaking 8 million dollars for a house. in the long run the real estate market is based on increased incomes. reason for the price drop was drop in earnings or worse unemployment. a lot of people are not even in the house market because they are unemployed or making little more than min. wage and no job security. etc

 

Not just commercial real estate, but the automotive sector, now, too!

Pretty soon, the neighbor's kids' lemonade stand will qualify for TALF loans!


Green shits!


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