'Legacy' CMBS Now Eligible Under TALF

The Federal Reserve on Wednesday cleared the way for "legacy" commercial mortgage-backed securities to be included as collateral under the government's Term Asset-Backed Securities Loan Facility (TALF) program, come July 1. The Fed issued a statement noting that the move to include CMBS as "eligible TALF collateral ... is intended to promote price discovery and liquidity for legacy CMBS." According to the central bank, the CMBS market finances 20% of outstanding commercial mortgages. It said the market came to a standstill in mid-2008. The TALF program allows investors to use government money to buy certain asset-backed bonds. (To date, the effort has focused mostly on credit cards.) In regard to CMBS, the Fed said that only "senior" (in payment priority) CMBS are eligible for TALF. The Federal Reserve Bank of New York said it "will review and reject as collateral any CMBS that does not meet the published terms or otherwise poses unacceptable risk."