Category — Federal Reserve

On August 18, 2009, the Federal Reserve Bank of New York (New York Fed) announced that it may limit the volume of Term Asset-Backed Securities Loan Facility (TALF) loans secured by legacy commercial mortgage-backed securities (CMBS), and that it is considering whether to allocate such volume via an auction or another procedure.

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On May 19, 2009, the Federal Reserve Bank (FRB) broadened the eligibility requirements for loan collateral under the Term Asset-Backed Securities Loan Facility (TALF) to include Commercial Mortgage-Backed Securities (CMBS) issued before January 1, 2009.  By making older CMBS eligible collateral for TALF loans, the FRB hopes to increase liquidity in a credit sector that represented about 20 percent of outstanding commercial mortgage lending before mid-2008.  The initial subscription dates for pre-2009 CMBS and CMBS issued in 2009 will be in late July (the exact date to be announced shortly) and June 16, respectively.

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On May 1, 2009, in response to recommendations from the commercial mortgage-backed securities (CMBS) sector, the Federal Reserve Bank (FRB) announced that, starting in June, five-year loans will be available under the Term Asset-Backed Securities Loan Facility (TALF) for the purchase of CMBS and insurance premium finance loans. The FRB currently intends to make up to $100 billion available for TALF loans with five-year terms. It will continue to evaluate that limit, however.

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The Term Asset-Backed Securities Loan Facility (TALF) is a new government program established jointly by the Board of Governors of the Federal Reserve and the U.S. Treasury Department to increase credit availability in the market. Under TALF, U.S. entities, including most funds organized and managed in the United States that invest in securitized consumer loans will be able to borrow from the Federal Reserve Bank of New York (the “New York Fed”), based on the value of the asset-backed securities (ABS) collateral, at low interest rates subject to a limited collateral haircut.

According to a joint press release and other publications on March 3, 2009 by the Board and the Treasury, the New York Fed will make up to $200 billion in fully secured loans under TALF, with the first loans settling on March 25, 2009 based on subscriptions received by March 17, 2009. Subsequent subscriptions will be scheduled on the first Tuesday of each month. TALF will cease making new loans on December 31, 2009, unless extended by the Board.

Despite previous announcements to the contrary, TALF sponsors, underwriters and borrowers will not be subject to executive compensation limits as a result of their participation in TALF, in order to maximize the effect of TALF on the credit markets.

Read the full alert here.