The Federal Reserve today announced a new set of terms for the TALF – Term Asset-Backed Securities Loan Facility, which is Federal Reserve’s earliest lending programs, to include mortgage loan / loans into it.
TALF helps investors to buy consumer debt-backed securities, by granting them low-cost and short-term loans. These low-cost short-term loans lasts for three years and their main focus in on car loans, credit card loans and other small securities. Now in order to increase the investors in Commercial Mortgage-Backed Securities (CMBS), the Federal Reserve is planning to extend the term of these short-term loans to five years.
These five-year maturities will be in effect from June 2009 and will be used to finance asset-backed securities, primarily in the commercial mortgage-backed securities sector. According to Federal Reserve these loans could account for upto $100 billion, so the Federal Reserve has planned to keep evaluating the limit.
The commercial mortgage-backed securities market continues to stuck on the belief of revival through the TALF program. Currently worth about $700 billion, it has suffered a sizable drop as triple-A bonds fell from 12% to 10% in recent months.
Reducing profits on current debt is essential to the government’s goal to kick-off new lending. This is because banks would not benefit from making new loans as long as investors can buy more secure CMBS for the same profit as compared inferior bonds.
According to experts, reviving the credit flow is crucial to the real estate industry, especially with another wave of mortgage debt coming due in the next few months.
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