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New loan program launches in June


2 May 2009

WASHINGTON (AP) -- 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 boost the availability of these loans, help prevent defaults on commercial properties likes office parks and malls and facilitate the sale of distressed properties, the Fed said.

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.

The TALF has the potential to generate up to $1 trillion in lending for households and businesses.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," Fed Chairman Ben 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 Administration, 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 offer 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 casualty insurance. Those loans "have
become more expensive and more difficult to obtain since the shutdown of that market last fall," the Fed explained. The Fed hopes its program will provide relief on those fronts.

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.

On the $200 billion consumer-lending part of the program, investors use the money to buy newly issued securities backed by auto and student loans, credit cards and other debt.However, just $1.7 billion in loans was requested for the second round of funding in April -- down from $4.7 billion in March.

Source: biz.yahoo.com

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