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Written by admin on May 12th, 2009

5-Year TALF Loans Billed As Real Estate Market Aid

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Recently, the Federal Reserve unveiled innovations to one of its lending programs in the hopes that it can be used to revitalized the commercial real estate market.

Known as TALF, the Term Asset-Backed Securities Loan Facility is a way for investors to take low-price loans from the Federal Reserve and use the funds to buy securities backed by consumer debt. Typically, TALF loans have durations of three years. They are targeted as ways to pay off credit card debt, auto debt, and other types of consumer loans. Now, with five-year TALF loans, there is a product that better suits the needs of investors who deal primarily with mortgage-backed securities.

In the past, experts have shied away from established five-year loan commitments since this would place limitations on the central bank’s ability to take money out of the financial system at a later date.

Now that there will TALF loans with five-year maturities that can be used to finance purchases of mortgage-backed securities like CMBS. The Federal Reserve suggested that there might be nearly $100 billion five-year TALF loans. Additionally, any interest earn from these securities can be applied to the principal of the loan. This may be a way to lower potential risks for the Federal Reserve as well as cut down the duration of the loan.

There has been movement on the CMBS market-a market with a $700 billion value-that has been fueled by the hope that the TALP could be a catalyst for the market.

The most important point for the policy makers in Washington is have a real strategy for getting the credit flowing to the $6.5 trillion real estate industry in order to compensate for the approaching due dates on massive commercial real estate debt. This is being looked at as very challenging prospect by most financial and real estate experts.

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