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TALF to include legacy CMBS

The US Federal Reserve has extended the Term Asset-Backed Securities Loan Facility to CMBS issued before 2009 in an effort to kick start real estate credit markets.

The US government’s Term Asset-Backed Securities Loan Facility (TALF) has been expanded to include legacy commercial mortgage-backed securities (CMBS) issued prior to 1 January 2009 in an expanded effort to kick start lending by US banks.

A previous announcement by the US Federal Reserve Board on 1 May included only newly issued CMBS.

The TALF programme was extended in a bid to set pricing levels and ease liquidity for legacy CMBS, as well as facilitate the issuance of new CMBS, the Fed said in a statement. The move will hopefully help create financing for the purchase of commercial properties and allow for the refinancing of existing commercial mortgages. The CMBS market effectively came to a standstill in mid-2008.

The expansion of TALF should help with two-thirds of the $410 billion in US CMBS coming due between 2009 and 2018 which are at risk of default owing to a lack of refinancing, according to Deutsche Bank research.

Deutsche Bank predicted earlier this month a gap of roughly $100 billion between available sources of debt and the financing that will be needed by borrowers when loans come due. A conservative estimate of default-related losses on fixed-rate CMBS loans was placed at $50 billion or 6.5 percent of loans outstanding.