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Geithner and Bernanke Urged to Extend TALF through 2010 for $6 Trillion Industry Real Estate Sector
Congressman Paul E. Kanjorski (D-PA), Chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, along with 41 other Congressional Democrats and Republicans have written a letter urging Treasury Secretary Timothy F. Geithner and Federal Reserve Chairman Ben S. Bernanke to extend the Term Asset-Backed Securities Loan Facility (TALF) through 2010 to provide essential support for the nation's teetering commercial real estate industry.
"The $6 trillion commercial real estate market has recently experienced a massive credit shortfall, which the TALF program has only just begun to help stabilize. While I would like to wind down the government's emergency support for the private sector as quickly as possible, we need to provide more time for the TALF program to work in this industry, especially with $1 trillion in commercial real estate debt maturing in the near future. We also need to safeguard the 9 million jobs connected to this sector," says Kanjorski. "To allow the green sprouts of a recovery to take root, I am hopeful that Secretary Geithner and Chairman Bernanke will agree with my colleagues and me by swiftly announcing a TALF extension in August."
Congressman Gary G. Miller (R-CA), the Ranking Republican on the House Financial Services Subcommittee on International Monetary Policy and Trade, joined with Chairman Kanjorski in building bipartisan support for the letter, whose cosigners include Congressman Barney Frank (D-MA), Chairman of the House Financial Services Committee, and Congresswoman Carolyn B. Maloney (D-NY), Chair of the Joint Economic Committee.
The text of the lawmakers' letter from July 31 and a complete list of cosigners follow:
Dear Secretary Geithner and Chairman Bernanke:
We applaud your recent efforts to include commercial mortgage-backed securities (CMBS) as eligible collateral under the Term Asset-Backed Securities Loan Facility (TALF). Given sufficient time, we believe that this effort will be instrumental in helping to restart the CMBS market and in enhancing liquidity in the commercial real estate market. Due to the lead time necessary to assemble TALF-eligible CMBS transactions, however, the program's remaining term does not permit adequate time to develop sufficient volume to address the massive credit shortfall in the sector. For this reason, we write to strongly recommend that you extend the TALF through the end of 2010 and that the extension be publicly announced as soon as possible, but no later than mid-August.
As you already know, the ongoing lack of liquidity in our commercial real estate credit markets threatens more than nine million real estate-related jobs and hundreds of millions of dollars in tax revenues the commercial real estate industry provides for federal, state and local governments. Of the $3 trillion commercial real estate debt market, more than $1 trillion of loans will mature during the next few years from a variety of sources. With most of these loans concentrated in banks and in mortgage-backed bonds held by institutional investors, this mounting wave of maturities, if not addressed, could erase many of the gains made by the financial services system in recent months. Unless the TALF is extended beyond its current expiration date of December 31, 2009, the commercial real estate market will simply not have sufficient liquidity to deal with this looming debt challenge.
For example, before the start of the TALF program, asset-backed securities (ABS) issuance volumes in the first quarter of this year were limited to $2.9 billion from three issuers. Since the launch of TALF last March, ABS issuance volumes have increased dramatically, as new investors such as hedge funds and traditional ABS buyers returned to the market. Initial concerns that centered on customer agreements limited the first funding date to a handful of investors, but given a more friendly agreement, participation increased in April and has grown dramatically in May and June (e.g., March: 3 deals totaling $7 billion; April: 4 deals, $3 billion; May: 8 deals, $14 billion; and June: 13 deals, $16 billion).
While CMBS became eligible collateral on June 16, no commercial real estate deals were priced on the first funding date, and only $669 million was requested for legacy CMBS deals at the July 16 facility. The underwriting process for CMBS deals is relatively lengthy, and it takes approximately four to five months to bring a CMBS deal to market. Assuming that the TALF expires in December, the last opportunity a borrower would have to begin the TALF process for new deals would be in mid-August.
While investor sentiment toward real estate as an asset class appears to be beginning to turn positive, a consistent, sizeable financing market for real estate still does not exist. Given the relatively late introduction of CMBS as eligible collateral, interested issuers under TALF may not have sufficient time to bring a deal to market this year, thus potentially prolonging a real estate recovery.
For these reasons, we believe that extending the TALF through 2010, and announcing the extension by mid-August, can ensure that this important program does not prematurely end before it has been given time to fully achieve its goals. Thank you for your consideration of our request.