TALF a Bust

The TALF is a complete bust so far. The first round in March had $4.7 billion in requested loans. The second round had only $1.7 billion. So much for the $1 trillion boost the TALF is supposed to provide to the moribund securitization market. For those not up to date on their Fed acronyms the TALF (Term Auction Lending Facility) was supposed to provide short terms loans versus highly rated securities to induce investors to purchase credit card and auto loan ABS, and eventually CMBS. Why has the TALF, announced with much fanfare by the Treasury, drawn yawns at best? I can only hazard a few guesses. According to an article in yesterday’s Wall Street Journal, the paperwork is a pain. So, you know, everybody hates paperwork, except for the government, of course.

According to the Wall Street Journal, the real-estate industry doesn’t believe that the short-term nature (three years max) of the loans being offered by the Fed through the TALF adequately fits real-estate investors’ need for longer term borrowing, as most commercial real estate loans have maturities of over five years. The real estate industry is lobbying the Fed for changes to the TALF to avert a wave of commercial real estate defaults on the record amounts of debt coming due in the next three years. The Fed, on the other hand, wants to maintain flexibility in its lending so that it can rapidly reverse its monetary policy in the event that inflation becomes a problem down the road. Hopes for the TALF had led to a rally in CMBS. But with the anemic interest in the TALF so far, and the deteriorating fundamentals in the underlying market (please see earlier post on commercial property vacancy rates), it seems unlikely that the commercial real estate market’s worst days are behind it.