CMSA Submits Formal TALF and Legacy Assets Plan
to Treasury and Fed
NEW YORK—March 25, 2009—Commercial Mortgage Securities Association has finalized a formal proposal for the Department of the Treasury and the Federal Reserve that outlines two approaches that should be taken to help enhance liquidity and facilitate lending in the private commercial mortgage market.
CMSA’s plan focuses on two key themes, primarily the resolution of legacy assets that were intended for securitization taken as security for the extension of credit or otherwise retained on book. CMSA said in its plan that it believes such legacy assets now constrain lenders’ capacity to provide new financing, as they clog their balance sheets and inflict unprecedented levels of valuation volatility.
In order to complete the proposal, CMSA brought together a collection of leading market participants in commercial mortgage real estate finance. This CMSA Liquidity Crisis Working Group, which met regularly for a number of months, submitted its proposal to Treasury and the Federal Reserve on Monday, March 16, 2009. On March 23, the Administration released details of its plan, the Public-Private Investment Program, to address legacy assets weighing on bank balance sheets.
“Legacy assets on bank and insurer balance sheets represent a significant obstacle to new lending because banks and insurers are unwilling or unable to commit new capital when they have not addressed the balance sheet drag of the outstanding assets,” according to the CMSA proposal. “Financial institutions have been unable to shed legacy assets for a number of reasons because of the unprecedented price volatility in the market for outstanding CMBS and an inability to sell large floating rate loans that were originated for securitization or syndication.”
In addition to legacy assets, CMSA said the investor incentive issue must be resolved and suggested in its proposal that the TALF be extended to CMBS with a minimum five-year term plus extensions, be free of mark-to-market provisions and have non-recourse financing.
CMSA and the market participants it represents remain in contact with Administration officials to offer advice and assistance as policymakers move forward with the structuring of programs under its Financial Stability Plan, including the TALF and Public-Private Investment programs.
The complete CMSA proposal, “Returning Liquidity to the Commercial Mortgage Market” is now publicly available on the association website, www.cmsaglobal.org > Government Relations > CMSA Issues > Latest Developments on Treasury Proposal.
Media Relations: Kenneth Reed, +1 212.589.0961, kreed@cmsaglobal.org.
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