Fed Hopes 5-Year TALF Loans Will Help Real-Estate Market
The Federal Reserve is preparing to announce new terms on one of its lending programs that officials hope will help revive the commercial-real-estate market, according to people familiar with the matter.
The program is the Term Asset-Backed Securities Loan Facility, or TALF, in which investors are given low-cost loans from the Fed and in turn use the money to buy securities backed by consumer debt. The loans in this program are three-year loans and so far have been aimed at car debt, credit-card debt and other consumer loans. The Fed is preparing to announce new loans with five-year terms to better match the needs of investors in commercial-mortgage-backed securities, an effort to boost that sector.
Officials have been reluctant to make such long-term loans, for fear five-year commitments could hamper the central bank's ability to withdraw money from the financial system down the road. They have been looking to design the expansion so the loans are less appealing in later years.
An announcement with the new terms could come as early as Friday, though, as with many of the Fed's rescue programs, discussions are often subject to last-minute changes that could alter those plans.
The $700 billion CMBS market has rallied in the past month on hopes TALF would be used to restart the market. Yields on triple-A CMBS bonds have fallen to about 10% from 12%, according to Trepp, which tracks commercial-property debt markets.
Bringing down the yields on existing debt is critical to spark new lending because, as long as investors can buy top-rated CMBS that yield as much as junk bonds, it would be unprofitable for banks to make new loans. That is because they would have to offer higher yields to attract investors, wiping out their profits.
Policy makers believe it is critical to get credit flowing to the $6.5 trillion real-estate industry because a massive amount of commercial-real-estate debt is coming due.( NB DON )