US to Aid Commerical Property Loans Starting in June
The Federal Reserve announced Friday that it will launch a much-awaited program in June to bolster commercial real-estate lending.
And, to help make the program more attractive to investors, the Fed will provide longer, five-year loans.
Investors would use the money to buy securities backed by commercial real-estate loans.
The goal is to revive lending in this market and to help prevent defaults on commercial properties likes office parks and malls.
The new commercial real-estate component is part of a broader program rolled out in March that aims to jump-start lending to consumers and small businesses called the Term Asset-Backed Securities Loan Facility, or TALF.
It figures prominently in efforts by the Fed and the Obama administration to ease credit stresses and stabilize the financial system. Those are critical elements needed to lift the country out of recession.
Earlier this year, the government said it planned to expand the TALF to include help for commercial real estate lending.
"There's a looming crisis in commercial real estate whereby owners of shopping malls, hotels, rental properties and many other types of buildings are unable to refinance or to pay for new construction," Bernanke warned lawmakers on Capitol Hill in March.
The market for so-called commercial mortgage-backed securities, or CMBS, came to a "standstill in mid-2008," the Fed said Friday in announcing the launch of the new piece of the TALF program.
The CMBS market accounted for almost half of new commercial mortgage originations in 2007, the Fed said.
The longer five-year loans also will be available in June to investors that want to buy securities backed by student loans and loans guaranteed by the Small Business Admininistration, the Fed said. A total of $100 billion could have these five-year maturities, the Fed said.
Currently those and all other loans under the TALF are for three years.
Also starting in June, the Fed will loans to investors wanting to buy securities backed by "insurance premium finance loans." Those are loans extended to small businesses so they can obtain property and casuality insurance.
Created by the Fed and the Treasury Department, the TALF has gotten off to a rocky start.
It has been hobbled by rule changes, investor worries about financial privacy and fears that participants might become ensnared in an anti-bailout backlash from the public and Congress.
Investors use the money to buy newly issued securities backed by auto and student loans, credit cards and other debt.
The program will be expanded to include commercial real-estate loans.
On the consumer part, just $1.7 billion in loans was requested for the second round of funding in April—down from $4.7 billion in March.
Separately, the government has struggled to get a separate bank-cleanup effort off the ground.
The Public-Private Investment Program will have two major initiatives: one will purchase soured mortgage loans with the help of the Federal Deposit Insurance Corp., and another to purchase troubled asset-backed securities.
That program will receive some financial backing by Treasury and the TALF.