Administration’s Plans for Buying Troubled Loans: What Does it Mean for Multifamily?
- Mar 24, 2009
By Anuradha Kher, Online News EditorNew York–The Obama administration has big plans to fix the credit market. The Federal Reserve announced recently that it would pump an extra $1 trillion into the financial system by purchasing Treasury bonds and mortgage securities. In addition, the Treasury Department, along with the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) has this week made public the details of its new Public-Private Investment Program (PPIP).The idea is to increase activity in the credit market by lowering interest rates, including those on home loans, and to help the financial system as it struggles due to bad loans and poor investments. So what does all this mean to the multifamily industry?“Well, all the measures taken by the administration are in the positive direction, they are all good for us,” Michael Berman, president and CEO of CWCapital, tells MHN.“The plans can be put into three different baskets. The ongoing measure includes buying up of Fannie Mae and Freddie Mac’s Commercial Mortgage Backed Securities (CMBS) loans,” he says, adding that the plan is already starting to work. “Since the government started buying up agency loans in January, their spreads have stabilized and moderated. Last year from October to December, the pricing was very volatile, but it has smoothed out now.”The second plan—called the Legacy Loans Program (LLP)—is designed to remove eligible legacy assets from banks’ balance sheets through private equity co-investment with the Treasury and the provision of debt guarantees by the FDIC. CMBS loans are part of the authorized class of loans in this plan.“This will help free up the existing assets that are clogging up the banks’ balance sheets and make way for more capital,” says Berman. The Treasury’s other public-private partnership plan is the Legacy Securities Program (LSP), which is designed to enhance the liquidity of legacy securities that are now thinly traded. The LSP will function through two channels. The first is an expansion of the Term Asset-Backed Securities Loan Facility (TALF) to include legacy non-agency RMBS and AAArated CMBS. As with TALF investments for new securities, non-recourse loans to fund the purchases will be extended to eligible borrowers by the Federal Reserve. The second LSP channel is the creation of dedicated funds where private capital will be matched by investments by Treasury. “All these measures are good for us,” says Berman.