Legacy CMBS-Eligible TALF Bids Soar, New Issue Stays Quiet

Investors put in bids for $2.28bn in loans to purchase so-called “legacy” commercial mortgage-backed securities (CMBS) on Thursday. The bids, made through the Federal Reserve‘s Term Asset-Backed Securities Loan Facility for CMBS, came in at 340% of the $668.94m of bids in the July 16th facility. Thursday’s legacy CMBS-eligible TALF facility bears rates of 3.03% on fixed 3-year loans and 3.9% on fixed 5-year loans. The facility closes August 28. The new issue CMBS-eligible TALF facility garnered no bids Thursday, marking the second new issue facility to pass without bids. The Fed initiated the TALF program to stimulate lending by allowing private investors to purchase securities with a matching government investment. The reach of the program into CMBS aimed to aid price discovery and provide liquidity for the commercial mortgage market, which faces a credit crisis of its own. The Fed and Treasury Department this week answered industry calls for an expanded deadline, pushing the legacy and new issue CMBS TALF through March 31. They were set to expire December 31, raising concerns among industry players that said more time was necessary for the programs to have a lasting effect. Lisa Pendergast, a managing director at Jefferies & Co., told HousingWire last week it was likely the Fed would have to extend at least one of the programs, although she said the new issue program looked more promising at the time. The lack of investor participation on the new issue CMBS TALF is not lost on Pendergast, who noted commercial mortgage originations remain low. “The challenge to the Federal Reserve,” Pendergast said, “is to try to stimulate the origination of commercial mortgages, keeping in mind the many challenges posed by the sector, including a lending environment in which credit fundamentals continue to deteriorate and the almost impossible task of efficiently hedging a pool of commercial mortgages during the aggregation stage prior to securitization.” Write to Diana Golobay.