MBA, Trade Groups Request ‘Immediate Support’ of Commercial, Multifamily Mortgage Markets
The Mortgage Bankers Association and other industry trade groups yesterday asked regulators for “immediate support” of commercial and multifamily mortgage markets.
In a letter to Federal Reserve System Board of Governors Chairman Jerome Powell, Treasury Secretary Steven Mnuchin, Federal Housing Finance Agency Director Mark Calabria and Federal Reserve Bank of New York President and CEO John Williams, MBA and 12 trade associations noted the Federal Reserve and Treasury Department has revived the Term Asset-Backed Securities Loan Facility [TALF], 2008-vintage Federal Reserve program that supported asset-backed securities issuance.
“By reviving this important program, this action sends a clear signal to markets that the Fed and the Treasury understand the gravity of the problem that COVID-19 presents to the American economy,” the letter said.
But commercial mortgage-backed securities were excluded from the TALF 2.0 program, which has caused “significant harm” to that market, the letter said. “We request [CMBS] be added as early as possible. The current extreme funding pressures on a wide range of financial institutions and a significant contraction in available liquidity at this time present a systemic risk to the U.S. mortgage markets, the financial system and the economy as a whole.”
The letter called the CMBS market a key element of the commercial real estate finance ecosystem and said CMBS account for 28 percent of all outstanding commercial real estate debt.
“We ask that you act in the immediate term to implement the following measures in order to avoid the negative loop created by a liquidity crisis in the CMBS market,” the associations said. “The current liquidity crisis has the real potential of sharply reducing the continued flow of capital to commercial and multifamily real estate.”
The organizations suggested additional asset classes be eligible for the TALF 2.0 program, especially those that were included in the original TALF program during the Global Financial Crisis. “Given the rapid pace of turmoil relative to the 2008 crisis, we suggest immediate action to provide liquidity to this integral sector,” the letter said.
The letter recommended that regulators expand the Term Asset-Backed Loan Facility to prevent worsening capital-markets conditions and adjust terms of TALF 2.0 to recognize current market dynamics.
“We recommend these steps in light of the accelerated market deterioration occurring at this time,” the letter said. “While much of the relief to date has rightly focused on consumer finance, the commercial and multifamily mortgage market has significant connectivity to other markets and institutions.”
The groups noted the CMBS market has important functions, including:
–CMBS is the main lending source to secondary and tertiary markets, with average loans sizes of $20 million in conduit CMBS supporting small- and medium-sized businesses, medical, multifamily, hotel and other sectors and property types.
–Single-asset single-borrower transactions are extremely transparent and have historically had extremely low loss rates isolated to a small proportion of outstanding transactions.
–Agency multifamily securities have historically low loss rates and often are over-subscribed at issuance.
“Investors in agency and private-label CMBS include public pension funds for many of the occupations on the frontlines of this crisis, including hospitals, firefighters, police and teachers,” the letter said. “CMBS is a visible proxy for real estate loans, where banks, life companies and other lenders have significant exposure. A non-functioning CMBS market will likely impact all commercial real estate loans.”
The organizations asked the Federal Reserve, Treasury department and FHFA to take “decisive steps” to reestablish liquidity in the multifamily and commercial mortgage markets to stabilize asset prices and shore up the balance sheets of market participants and offered any assistance necessary.
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