"Here Comes the Commercial Bailout
Posted By DIANA GOLOBAY
May 4, 2009 8:26 am
The Federal Reserve on Friday announced commercial mortgage-backed securities (CMBS) and securities backed by insurance premium finance loans as of June are eligible collateral for TALF participation. The additions are aimed at stimulating lending in the commercial real estate and small business sector by allowing private investors to purchase securities with a matching government investment.
“The CMBS market came to a standstill in mid-2008,” Fed officials said in  a media statement. “The inclusion of CMBS as eligible collateral for TALF loans will help prevent defaults on economically viable commercial properties, increase the capacity of current holders of maturing mortgages to make additional loans, and facilitate the sale of distressed properties.”
Although the Fed pointed out that CMBS accounted for nearly half of new commercial mortgage originations in 2007, the CMBS market itself seems to have grown less appealing in recent weeks, with Standard & Poor’s Ratings Services  warning in early April of a coming slide in CMBS as the economic recession appears set to take a bite out of one of the few remaining real estate classes to survive much of the turmoil in financial markets worldwide.
“Since September/October 2008, Standard & Poor’s has witnessed significant deterioration in the credit performance of the CMBS transactions it rates,” said credit analyst James Manzi. “The economic recession combined with the absence of readily accessible financing in the capital markets has, in our opinion, skewed the credit risks related to the performance of CMBS sharply to the downside, and in excess of what we expected at origination or in our prior scenario analysis.”
Of course, the Fed’s announcement to include CMBS in the latest round of alphabet soup programs designed to provide liquidity and confidence to the financial markets means government regulators hope to stem further deterioration. The Fed also said the inclusion of ABS backed by insurance premium finance loans to small businesses should facilitate the flow and affordability of credit to small businesses.
The Fed also authorized 5-year loans as of June to purchase CMBS, ABS backed by student loans and by loans guaranteed by the Small Business Administration. Up to $100bn of TALF loans could have 5-year maturities.
The Fed said in February it planned to expand the program; Friday’s announcement moves TALF along toward that goal.
Write to Diana Golobay at  email@example.com."