House To Vote on Relief, CRE Begs for a Piece

WASHINGTON, DC-The House, today, will vote on a bill–H.R. 384, the TARP Reform and Accountability Act–a bill proposed by Rep. Barney Frank (D-MA)which calls for an allocation of funds for foreclosure mitigation. The money relief would only apply to owner-occupied residences, as well as liability protection for loan servicers who engage in loan modifications. The loan servicers would have to report to Treasury which would be authorized to provide support for commercial real estate loans and commercial mortgage-backed securities.

While the focus of the bill is largely residential, CRE is bidding for a slice of the bailout pie, as well. Autonomous from this bill proposal, however, the Commercial Mortgage Securities Assoc., along with 11 other CRE groups, is lobbying for a piece of the $700 billion in funds that have been set aside to bolster–or rather, salvage–the economy and financial system. Specifically, these organizations are asking Congress to extend the Term Asset-Backed Securities Lending Facility (TALF) to commercial real estate by $20 billion. That money would then be leveraged with a Federal Reserve Bank facility that would range between $200 billion to $500 billion. Locally-based Real Estate Roundtable has been promoting a similar idea.

The proposed Fed facility would be used to jump start commercial lending as well as support commercial real estate loans that are turning over in the near future, Brendan Reilly, SVP of government relations for CMSA, tells GlobeSt.com. “There are liquidity issues that borrowers are facing now–liquidity issues that have not yet become credit default problems. With a minimum investment we can make a lot of headway before the situation becomes truly dire,” he says.

The industry associations have sent a letter to both the House and the Senate requesting the funds. “Currently, banks and the CMBS market represent 75% of all outstanding commercial real estate loans,” the letter stated. “The CMBS market has ceased to function with respect to new issuance, and existing bonds trade at highly excessive spreads, all of which heralds systemic dysfunction.”

Reilly says that Congress has been very receptive to the challenges the industry is facing, if not their proposed solution. “Congress understands the CRE industry is suffering from liquidity issues, and that as the economy faces further difficulties the situation may well turn into one of widespread defaults.”

Reilly says the coalition of groups is not married to the idea of expanding TALF. “It could be a separate facility if that works better.What is important is that an allocation of TARP funds needs to be used for CRE.”