Follow up on TALF program; Extended

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As some of you may, or may have not heard, the Fed has extended the TALF program til June 30th of next year.

Here's the meat and taters of it.

The Federal Reserve extended by three to six months an emergency program aimed at restarting credit markets, a move that may cushion the commercial real- estate industry from rising defaults and falling prices.

The Term Asset-Backed Securities Loan Facility, with a capacity of as much as $1 trillion, will expire June 30 for newly issued commercial mortgage-backed securities, instead of Dec. 31, the Fed and U.S. Treasury said today in a statement in Washington. For other asset-backed securities and CMBS sold before Jan. 1, the plan was extended three months to March 31.

Commercial property values have fallen 35 percent since peaking in October 2007, according to Moody’s Investors Service. The extension may help firms such as Vornado Realty Trust, which is considering the sale of commercial MBS through the TALF. Almost $165 billion of mortgages for skyscrapers, shopping malls and hotels are due this year.

While financial-market conditions “have improved considerably in recent months,†the markets for ABS and CMBS “are still impaired and seem likely to remain so for some time,†the Fed and Treasury said.

The central bank said it doesn’t intend to make other types of collateral eligible for the program, indicating officials rejected adding residential mortgage-backed securities after considering such a move for several months. The Fed didn’t rule out a future expansion.

Door Open

Policy makers also left the door open to prolonging the program beyond the new expiration dates, saying they “will consider in the future whether unusual and exigent circumstances warrant a further extension.â€

While extending the TALF, the Fed is trimming or ending other emergency programs. Last week, officials decided to phase out their $300 billion of Treasury-bond purchases through the end of October. The Fed has reduced sales of Term Auction Facility loans to commercial banks by one-third and is letting a money-market lending program end in October.

In June, the Fed extended other emergency-loan programs by three months to Feb. 1.

“The Fed realizes that the markets are getting better but are not yet healthy enough to stand on their own,†said Scott Buchta, a Chicago-based strategist at Guggenheim Capital Markets LLC. The June extension for new CMBS “shows that they feel that market may take a bit longer to get up and running again,†Buchta said.

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