Panel: Gov’t Programs to Unfreeze Lending May Prove Effective, but Will Take Time

The alphabet soup of government programs, from PPIP to TALF, introduced by the federal government to thaw the frozen credits may very well succeed in that mission–but the medicine will take time to take effect, a panel convened by Ernst & Young in New York concluded. The panelists expressed hope that the Term Asset-Backed Securities Loan Facility, or TALF, which was recently extended to CMBS, and extended to five-year terms to better match CMBS loan lengths, will have a positive effect. TALF, originally conceived as a vehicle to re-start investment in securities backed by credit card and auto loans, got off to a slow start, but has recently picked up momentum, said Joseph Murin (pictured), president of Ginnie Mae. However, the panelists said there is likely to be a wide bid-ask spread on these loans, which may take some time to narrow. While the formation of the Resolution Trust Corp. in the wake of the savings and loan debacle of the early 90’s is now hailed as a success, it also did not get a fast start, said Joe Rubin, principal of Transaction Real Estate Services. “It took two to three years to develop,” Rubin said. In addition, the clear majority of loans sold by the RTC were on stabilized, cash-generating properties, Rubin said. The scenario is quite different today, he said, as many troubled loans are construction and land loans, and have more complicated structures, such as a mezzanine piece, he said. Another program soon to be rolled out is the Public Private Investment Program, where private investors will partner with money provided by the U.S. Treasury to buy toxic assets, including mortgage securities. Mark Grinis, audit partner and leader of Ernst & Young’s Americas Real Estate Distress Services Group, said PPIP is, by and large, a “well-conceived program.” Rubin also said the program deserves praise for its transparency, for example, the Federal Deposit Insurance Corp.’s weekly conference calls with investors. The panelists did see some positive signs. Rick Solway, partner in the real estate tax department of Ernst & Young, cited as a positive the publicly traded REITs that have been able to raise $10 billion in equity recently. Rubin also said there could well be a significant new CMBS issuance this year, secured by a single asset, or by a single borrower, helped along by the TALF program. While the federal government would like to see a CMBS pool that contained multiple loans, he said that is unlikely, at least in the near term. And Solway says that some private investors are increasingly looking to provide equity to troubled borrowers, in exchange, for example, for some of the upside in an asset. “These negotiations are starting to happen,” he said. Smaller commercial banks and thrifts are also picking up some of the lending slack in the marketplace, Murin said. He called the variety of government programs “tools” to get the credit stream flowing again. But, he noted, “there is no silver bullet.”