Fed expands real estate securities

Fed expands real estate securities

By Jeannine Aversa, Associated Press
Published: Tuesday, May 19, 2009 9:18 p.m. MDT

WASHINGTON — The Federal Reserve starting in July will include a wider variety of commercial real estate securities in a program that's intended to spark consumer and business lending.

Under the program begun in March, the Fed has provided $17 billion in loans to investors to buy newly issued securities backed by auto and student loans, credit cards, business equipment or guaranteed by the Small Business Administration.

The program already is scheduled to expand in June to include newly issued commercial real-estate securities. That could help prevent defaults on office parks and malls, and facilitate the sale of distressed properties.

The Fed said Tuesday the program would be expanded further to include existing high-quality commercial real-estate securities that were created years ago.

The latest change is designed to bolster the market for existing commercial real estate securities, which were hard hit by the financial crisis. It should ease pressure on banks and other financial institutions that hold these securities, the Fed said. That, in turn, should help borrowers finance new purchases of commercial properties or refinance existing mortgages on better terms.

Lawmakers and investors had urged the Fed to make the change.

The Treasury Department welcomed the move, saying it will help "small and midsize banks" and other holders of existing commercial mortgage-backed securities that want to "clear their balance sheet for new lending."

The program is called the Term-Asset-Backed Securities Loan Program, or TALF. It figures prominently in efforts by the Fed and the Obama administration to ease credit, stabilize the financial system and help end the recession. The TALF has the potential to generate up to $1 trillion in lending for households and businesses, according to the Fed.

Starting in July, the Fed will include existing commercial real-estate securities that were issued before Jan. 1, 2009. Those securities will need at least two AAA ratings from among the major ratings agencies, the Fed said. The agencies the Fed cited are: DBRS, Fitch Ratings, Moody's Investors Service, Realpoint or Standard & Poor's.

Lawmakers also have raised concerns about whether the Fed is ensuring that credit-rating agencies are accurately assessing collateral for the loans. Credit-rating failures contributed to the financial crisis that plunged the country into recession.

The Fed said Tuesday it's in the process of determining which agencies will be allowed to grade eligible collateral in an array of Fed programs designed to loosen credit.
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