2nd UPDATE: Fed Chooses Collateral Monitor For Commercial Mtge Bonds
June 16 2009 - 1:05PM
Dow Jones News
The Federal Reserve has chosen a collateral monitor for new and
existing securities backed by commercial real estate loans as part
of a program through which it plans to offer investors cheap loans
to buy such bonds.
Trepp LLC will "assist the New York Fed by providing valuation,
modeling, analytics and reporting" on these commercial
mortgage-backed securities, the central bank said Tuesday. Tuesday
is also the deadline for loan applications under the newly created
commercial mortgage bond portion of the bank's Term Asset-Backed
Securities Loan Facility, or TALF, with an announcement on amounts
applied for expected around 5 p.m. EDT.
The Fed is being very cautious in selecting the bonds for which
it will offer non-recourse loans to investors. Bonds must be rated
triple-A by at least two of five rating agencies, and may not be
rated lower than that by the other three or even be on watch for
downgrade.
The central bank may also reject the bonds based on other
factors such as "unacceptable performance of the mortgage loan
pool" or "unacceptable concentrations" of borrowers or property
types and geographic regions.
Trepp's role is to help with monitoring collateral to protect
the central bank from losses.
The greatest challenge the company faces in carrying out the
Fed's work is to "cover the gamut of all the activities the Fed
needs done," said Tom Fink, senior vice president of Trepp.
According to the firm's Web site, Trepp is a "provider of
commercial mortgage bond securities and commercial mortgage
information, analytics and technology" to the securities and
investment management industries.
The New York-based company, which has 60 employees, will not be
hiring more people to handle the Fed's tasks, Fink said.
"We have the resources, both in technology and people, to do the
work."
The firm "will not establish policies or make decisions for the
New York Fed, including decisions whether to reject a CMBS as
collateral for a TALF loan," the Fed said, adding that it may use
the services of other collateral monitors in connection with
TALF.
TALF was originally targeted at consumer lending, where the
program has had some success in stimulating issuance and tightening
risk premiums, which in turn should improve consumers' access to
credit and make it more affordable. New consumer-loan backed deals
have totaled $56 billion so far this year, with the bulk of them
eligible for funding through the TALF program. The sector was
frozen last year at the height of the credit crisis.
Reviving the struggling commercial mortgage bond market,
however, will take more time. So far there hasn't been any new
issuance of securities because commercial real estate lending, to
build hotels and malls, for example, has slowed significantly.
"It is not a surprise that there is a delay in starting this
part of the program," said Kevin Petrasic, a lawyer with law firm
Paul Hastings, which advises clients on investing in TALF. "The
initial months of the consumer asset-backed securities' part of
TALF were slow but the overall impact was positive and issuance did
pick up."
In contrast to the consumer TALF, the Fed will also offer loans
for existing CMBS, likely beginning in late July.
-By Anusha Shrivastava, Dow Jones Newswires; +1-212-416-2227;
anusha.shrivastava@dowjones.com