Fed Receives $1.5 Billion In TALF Loan Requests For CMBS

The Federal Reserve received just under $1.5 billion in loan requests from investors to buy commercial mortgage bonds under the Term Asset-Backed Securities Loan Facility, or TALF, according to data released Tuesday.

This is part of the central bank's efforts to jump-start the dormant commercial mortgage realm.

For the first time, the program has included a new commercial mortgage bond. A $400 million deal from Developers Diversified Realty Corp. (DDR) is said to have drawn a mix of TALF and non-TALF investors, who didn't tap the Fed's program for cheap loans.

The program also allows for the purchase of existing securities. The Fed has announced a rate of 2.72% on a fixed, three-year loan and 3.5427% on a five-year loan.

The central bank reserves the right to use its discretion in awarding these loans requests, and not all securities that satisfy its terms may qualify for the loan. Last time, the Fed unexpectedly rejected five securities without any explanations. This threw investors and market participants into a tizzy, and is likely to affect participation this time.

Projections estimated that the Fed would receive $1.7 billion in requests. It actually received $1.42 billion in so-called legacy requests for existing CMBS, and $72.2 million for new CMBS.

The TALF program hasn't been as effective in the commercial mortgages as it has been with asset-backed securities. To give banks more time to put together new deals, the Fed extended the TALF program to June 30, 2010, for newly issued CMBS and to March 31, 2010, for all other TALF-eligible bonds. The program was initially set to expire at the end of this year.

The Fed will announce the closing, and its acceptance of these loans on Nov. 25.

-By Prabha Natarajan, Dow Jones Newswires; 212-416-2468; [e-mail]