This page has been archived and commenting is disabled.

Fed Admits It Accepts Unworthy Collateral In TALF

Tyler Durden's picture




 

Yesterday the Federal Reserve Board of New York made an announcement, indicating recent posturing that it would carefully pick collateral for the TALF program, has been a sham (not that we would expect anything out of Bernanke, Cheatem and Howe). One wonders what the utility of having so many new NRSROs recently hired by the Fed receive taxpayer money and to share their perspective on collateral quality, when the Fed openly overrides them and decides what legacy loans are TALF-worthy on its own.

Here is the Fed's mea culpa:

The New York Fed continuously reviews the stress value estimates and recently identified and corrected a methodological error.  The New York Fed has determined that as a result of this error, one legacy CMBS — CUSIP 059497AX5 — was accepted as collateral that would not have been accepted using the current methodology. However, the New York Fed continues to expect no losses on the loans backed by this CMBS because the stress value is based on extremely unlikely economic circumstances, and because the market value of this CMBS is well above the TALF loan amounts.

We all know how good the Fed is at predicting, or, as some would say, creating, "unlikely economic circumstances." As for the market value, did it ever dawn on the idiot savants over at 33 Liberty that prices are merely a reflection of the Fed's own TALF/PPIP program. By including worthless crap such as this, which receives taxpayer-funded leverage, of course market value of CMBS classes will be above loan amounts. We are confident the Fed will figure this out on its own eventually, hopefully not too long after the Fed is forced to provide information on just how many other 059497AX5-comparably worthless CUSIPs are part of the Fed's backstop programs.

In fact, the Fed apparently realized what a big mistake it has made by adding the following disclaimer:

The New York Fed will not accept CMBS CUSIP 059497AX5 as collateral for new TALF loans at or around its current market price. 

But wait, we thought the market price indicates no impairment to taxpayer loans is ever possible? Why the contradiction?

So instead of buying any Kool-Aid spewed forth by the liars and thieves from the money printing syndicate, we decided to analyze the details of CUSIP 059497AX5.

The loan in question is BACM 07-1, a Bank of America Fusion deal, with a current balance of $3.1 billion. According to the most recent remittance report, this loan has 13.3% of its constituents in delinquency or special servicing, for a total of $417.47 million. This means that as of today, less than 87% of the loan is in pristine condition. Furthermore, $1 billion of the loan consists of office properties, 40 of them to be exact, and is also exposed to $146 billion in 9 hotel properties, and $638 million in multifamily units. We can't wait to see the full pain that the Fed will experience as a result of ongoing deterioration in these three key CRE verticals. Geographically, 18.6% of the loan has California exposure, and 13.2% of it is based in New York.

Most recently, $342 million of properties were unable to cover their debt service (DSCR <1), while $1.2 billion had a precarious DSCR of less than 1.25 and deteriorating. Less than one third of the entire deal had a DSCR of a relatively safe over 1.5.

A summary of the riskiest properties in the TALF-eligible but not collateral is provided below:

And, most importantly, the borrowers who get to benefit from this "spurious" TALF inclusion are CESC Skyline, Maguire Partners, Magazine Portfolio Holdings, VII Pac Shores and 575 Lexington Avenue.

The most impaired properties are Solana in Westlake, TX, 30 days delinquent for $220 million, Indian Hills Apartments, 30 days delinquent for $46 million, 575 Lexington, watchlisted at $162 million with a 0.62 DSCR, 1412 Broadway, watchlisted at $102 million, a 0.7 DSCR. We expect many more properties in this deal to collapse shortly, and we can't wait to hear more lies from the Fed notifying idiot readers that all is well with its subsidization of increasingly more worthless CRE holdings.

We will continue monitoring future Fed lies in the CRE and TALF area closely and will report on all as we see them.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Wed, 01/06/2010 - 11:02 | 184264 Cursive
Cursive's picture

Further proof that TARP was a "trojan horse" for the Bailout.  These other "short term" tools of the FRB are the major buttress to the banks.  TALF, TANF, etc. need to be killed, along with the FRB.

Wed, 01/06/2010 - 11:02 | 184265 ToNYC
ToNYC's picture

Hey, it's only fair to fund their retirement packages with the cash-flow of their no worries loan tranches..LOL..eating their own dogfood you might call it.

Wed, 01/06/2010 - 11:14 | 184282 trav7777
trav7777's picture

Well, golly gee...no way!

You mean it wasn't the good productive assets?

A lot of the trash marked at par on the banks' and Fed's books is actually trash that is of near-zero worth.  Anyone with a cursory understanding of how CDOs work gets that with the impairments we've seen in the underliers, that mezz and equity tranche paper is worthless.

I wonder if there are any "real" MBS or ABS pools left out there...certainly, nobody in their right mind is going to swap supersenior paying paper for a loan, what would be the point in that?

Wed, 01/06/2010 - 11:30 | 184298 Anonymous
Anonymous's picture

All I can say:Man,you are good and quick. And if you are realy one TD,then you don't sleep too....

Wed, 01/06/2010 - 11:37 | 184305 Oso
Oso's picture

treasuries just fell out of bed, curve steepened pretty quick.

Wed, 01/06/2010 - 12:09 | 184354 bugs_
bugs_'s picture

"recently identified and corrected a
methodological error"

sounds better than

"a bureaucratic snafu"

Wed, 01/06/2010 - 12:11 | 184358 Anonymous
Anonymous's picture

The FED Is like the ever loving all beneficent Father.

No collateral is ever truly unworthy.

-MobBarley

Wed, 01/06/2010 - 12:41 | 184407 curbyourrisk
curbyourrisk's picture

"However, the New York Fed continues to expect no losses on the loans backed by this CMBS because the stress value is based on extremely unlikely economic circumstances, and because the market value of this CMBS is well above the TALF loan amounts."

You mean extremely unlikely economic circumstances like unemployment going over 8.8%???  Jack-asses....everyone of them!

Wed, 01/06/2010 - 12:53 | 184433 Yossarian
Yossarian's picture

So The Fed lent money using this CUSIP 059497AX5 as collateral.  How much did they lend- $3.1B?  What was the current loan value and how did they arrive at the figure?  Did they discount to the current loan value?  Who knows, if they loaned $2B against this collateral it may not have been a terrible deal.  

Wed, 01/06/2010 - 12:57 | 184439 Anonymous
Anonymous's picture

That Solana in Westlake has always been a ghost town. I cannot believe it has not bankrupted already?

Wed, 01/06/2010 - 13:11 | 184483 Anonymous
Anonymous's picture

Don't forget that there are similar questions over the ECB's collateral:

http://www.zerohedge.com/article/federal-reserve-balance-sheet-update-we...

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=avfEaCuAvN_4

20 Nov 2009

"The bank “will require at least two ratings from an accepted external credit assessment institution for all” asset- backed securities issued from March 1, 2010, the Frankfurt-based central bank said today in an e-mailed statement. In January, the ECB said it required a rating from one credit assessor."

Wed, 01/06/2010 - 13:11 | 184484 Anonymous
Anonymous's picture

If I am not mistaken, the Fed and treasury conspired to put the truly worthless collateral in off-balance sheet super SIVS like Maiden Lane I, II and various other undisclosed SIVs (Enronomics) to give the appearance of solvency in order for treasury to issue a couple trillion in new debt.

Wed, 01/06/2010 - 15:44 | 184711 Anonymous
Anonymous's picture

The TARP was toxic assets put on the US Treasury (taxpayers). The TALF was AAA-rated assets that the privately-owned Fed gets.

Is this analysis right? How come nobody talks about it? People always lump them together, but nobody noticed that the Fed gets AAA, and the taxpayers get toxic? Is this analysis right? Thanks.

Wed, 01/06/2010 - 15:55 | 184730 Anonymous
Anonymous's picture

The TARP was toxic assets put on the US Treasury (taxpayers). The TALF was AAA-rated assets that the privately-owned Fed gets.

Is this analysis right? How come nobody talks about it? People always lump them together, but nobody noticed that the Fed gets AAA, and the taxpayers get toxic? Is this analysis right? Thanks.

Wed, 01/06/2010 - 17:03 | 184835 Hephasteus
Hephasteus's picture

Admitting these things have no value is not much of a confession. If they did then the diced up MBS's would  still be dumped on pension funds and other money pools all over the world.

Wed, 01/06/2010 - 17:53 | 184912 Green Sharts
Green Sharts's picture

By including worthless crap such as this

Back to the old "worthless crap" canard, Tyler?  By your own admission, close to 1/3 of the assets backing the security you reference have very strong interest coverage and 13% are delinquent or in special servicing.  The rest of the assets are making timely payments and apparently still have some margin for error.  If 33% of the assets are worth par, the 13% that are delinquent are worth $.50 on the dollar and the other 54% are worth $.75 on the dollar, the security is worth roughly $.80 on the dollar before you look at subordination.  If this is a senior tranche with junior securities below it that take the losses first, it might be worth $$.85-$.90 on the dollar.  If it was trading at $.70 on the dollar and the Fed valued it at that as collateral that price would allow for a lot of additional deterioration in performance.  

The value of a lot of RMBS and CMBS had big rallies in 2009 well before the PPIP ever started because they were priced down to catastrophic default and recovery assumptions.  Seth Klarman, a noted value investor with a great long-term record, was buying them.  Jeff Gundlach, who you seem to think is a pretty smart guy and who also has a great long-term track record, was buying private label RMBS (also worthless crap, right?) but not CMBS.

Is your position really that this security is literally worthless?

of course market value of CMBS classes will be above loan amounts.

What percentage of outstanding CMBS are trading above par?

Wed, 01/06/2010 - 22:33 | 185175 Dr. Richard Kimble
Dr. Richard Kimble's picture

A4 Tranche with current AAA rating from realpoint and the other rascals (moodys/S&P) plenty of subordination..definitely worse collateral out there...

Thu, 01/07/2010 - 01:34 | 185252 Anonymous
Anonymous's picture

I'm shocked! The Chairman just assured us via govTwits that all is fine:

 

"govTwits Daily Highlights"

http://outsidethe-cardboard-box.tumblr.com/post/320504177/govtwits-daily-highlights

 

Thu, 01/07/2010 - 01:40 | 185255 Tom North
Tom North's picture

I'm shocked! the Chairman just assued us via govTwits that all was fine:

 

"govTwits Daily Highlights"

http://outsidethe-cardboard-box.tumblr.com/post/320504177/govtwits-daily-highlights

 

Do NOT follow this link or you will be banned from the site!