As Zero Hedge expected a few short weeks ago, the Fed realized that its TALF revision 364.5 for CMBS was worthless, so today, after many deep thoughts on how to force feed U.S. taxpayers even more toxic garbage, the wise and grizzled Ben Bernanke issued TALF directive 364.6 and decided to extend the acceptance threshold to all past legacy CMBS loans as eligible for TALF. While the original seniority has to be most senior, the following cryptic language was added with regard to current ratings:
Current Ratings: As of the TALF loan closing date, the CMBS must have a credit rating in the highest long-term investment-grade rating category from at least two TALF CMBS-eligible rating agencies and must not have a credit rating below the highest investment-grade rating category from any TALF CMBS-eligible rating agency. Eligible collateral will not include a CMBS that obtains such credit ratings based on the benefit of a third-party guarantee or a CMBS that a TALF CMBS-eligible rating agency has placed on review or watch for downgrade. See the “Frequently Asked Questions for Legacy CMBS” for further information regarding TALF CMBS-eligible rating agencies.
Following up on the FAQ, here is some of the salient additional garbage that will force future generations of Americans to pay off their credit cards to Bank Of China. What the Fed is really saying is provided below each respective FAQ section.
Which nationally recognized statistical rating organizations (NRSROs) are TALF CMBS-eligible rating agencies?
TALF CMBS-eligible rating agencies are DBRS, Inc., Fitch Ratings, Moody’s Investors Service, Realpoint LLC and Standard & Poor’s.
We do not believe in relying on someone who has something even remotely resembling half a brain - agencies such as Egan-Jones who have a verifiable and much better track record than the Big 3 will be forever forbidden from providing their correct insight on stuff and things.
Do CMBS (e.g., Class A-2) that receive principal later than the other most senior CMBS classes (e.g., Class A-1) but are otherwise pari passu with such other senior CMBS, qualify for TALF financing?
Yes, the exclusion of “junior” CMBS in the Terms and Conditions is a reference to subordination for credit support, not to a later position in the time tranche sequence.
Yes, we will gladly accept all crap. In fact, in 2 weeks, when we realize that we could be even more generous with other people's money, we will accept diarrhea, vomit and biohazard as well.
On what basis will the New York Fed decide whether or not to accept a CMBS under the legacy TALF program?
The New York Fed may reject a CMBS based on factors including, but not limited to, the following:
- The CMBS does not meet the explicit requirements stated in the Terms and Conditions.
- Unacceptable performance of the mortgage loan pool. CMBS that represent interests in pools with high cumulative losses, a high percentage of delinquent loans, loans in special servicing or loans on servicer watch lists or a high percentage of subordinate-priority loans may be rejected. The New York Fed may consider in its decisions forecasts of pool level losses under various stress scenarios.
- Unacceptable concentrations. CMBS that represent interests in pools that, alone or considered together with loan pools backing other TALF-financed CMBS, possess one or more concentrations (such as borrower sponsorship, property type and geographic region) considered unacceptable to the New York Fed may be rejected.
The New York Fed will utilize the services of one or more agents in connection with the review of legacy CMBS and the loan pools that back them.
Don't ask, don't tell works well for the military. Going forward we will consult exclusively with PIMCO and BlackRock in determining which asset manager makes billions as the expense of taxpayers... We will start with PIMCO and BlackRock.
Are zero coupon ABSs eligible as collateral for the TALF?
No. Zero coupon ABS are not eligible as TALF collateral.
We need to make sure the "Private Investors" collect at least the 2-3 cash coupon payments that make them whole on their investments, otherwise they will balk if they stand to lose anything.
What happens if an ABS that was eligible for TALF financing is downgraded by an NRSRO?
Nothing happens to existing TALF loans secured by that ABS. However, the ABS may not be used as collateral for any new TALF loans until it regains its status as eligible collateral.
Why would anything have to happen if the piece of crap start being a very smelly piece of crap? After all it is other peoples' money at risk, not PIMROCK's... Since when do we actually care about the taxpayer.
And just so there is no confusion, here is CMSA's immediate response to the most recent TALF lunacy:
Commercial Mortgage Securities Association has regularly and vocally advocated for the inclusion of both legacy and new CMBS eligibility in TALF and the association continues to press forward for the revival of the credit markets and the larger commercial real estate market. CMSA looks forward to its ongoing conversations with the Federal Reserve and with policymakers to ensure that the TALF program and other relief efforts maintain a view toward providing liquidity and facilitating lending in the most efficient and effective manner.
Please, everyone, it is your moral duty to take your wallet out right now and hand over your money to the CMSA... All of it... After all, on a NPV basis, that's exactly what we are all doing.
hat tip Alex