Fed extends bailout programme to commercial real estate

02 May 2009

The US Federal Reserve board has extended the bailout programme to the commercial real estate sector and allowed it to access the Term Asset-Backed Securities Loan Facility (TALF) - an emergency programme set up last year to save the credit markets from the global financial crisis.

''Starting in June, commercial mortgage-backed securities (CMBS) and securities backed by insurance premium finance loans will be eligible collateral under the Term Asset-Backed Securities Loan Facility (TALF),'' the Fed said in a release.

The market for commercial property has been at a standstill since mid-2008 and Fed expects the inclusion of commercial property as eligible collateral for TALF loans will help prevent defaults on economically viable commercial properties, increase the capacity of current holders of maturing mortgages to make additional loans, and facilitate the sale of distressed properties.

Commercial property accounted for almost half of new commercial mortgage originations in 2007. 

According to the Fed release, more than 1.5 million loans financed by insurance premium are extended each year to small businesses so they can obtain property and casualty insurance.

The loans, mostly funded through the asset-backed securities market, have become more expensive and more difficult to obtain since the shutdown of that market. The Fed hopes inclusion of insurance premium as TALF-eligible collateral will facilitate the flow of credit to small businesses.