Another wrinkle in the TALF CMBS saga

August 4, 2009

The New Fed has released some modifications on its CMBS TALF program that could be telling as to why one of the CMBS legacy bonds put up as collateral was rejected during the inaugural round.

Clarification added to the FAQ:

The New York Fed will not fund a TALF loan if, in its judgment, a potential borrower is motivated to request a TALF loan due to such borrower’s or any of its affiliates’ direct or indirect economic interest in the underlying loans or leases, or products or services relating to such loans or leases, contained in the pool backing the ABS, and such economic interest would impact the incentive of such borrower to independently assess the risk of investment in such ABS. To the extent that any potential TALF borrower has any concerns that it could be rejected on this basis, such borrower is encouraged to contact the New York Fed well in advance of its loan request.

The Fed will continue to publish a list of rejected (as well as accepted) legacy CMBS based on compliance with the program’s terms and conditions and the central bank’s own risk assessment. But some will not be included.

The list of rejected CUSIPs does not include any legacy CMBS identified in a loan request that may have been rejected due to the failure to properly complete a TALF loan request form, the
failure to provide a sales confirmation that meets the requirements of the MLSA, borrower ineligibility, or the New York Fed’s assessment of the reasonableness of the secondary market transaction price.

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