| p>For many in the commercial real estate markets | | | | family homes and condominium units owned by and |
| the question has been where are all the deals? Banks, | | | | occupied by the homeowner. |
| investors, and developers are clearly under duress, | | | | * TAF - Term Action Facility. In addition to |
| yet few truly distressed deals have come to market. | | | | establishing a credit facility for securities dealers, |
| According to a recent report from a major | | | | allowing them to borrow directly from the central |
| investment brokerage firm, sales of commercial | | | | bank. The Bush Administration, in December of 2007, |
| assets were down 70 percent from one year earlier | | | | established the TAF to enable depository institutions |
| by the end of the first quarter in 2009. The | | | | (commercial banks) to obtain credit through a bidding |
| combined influences of banks attempting to | | | | process. This helped ailing banks find capital when the |
| postpone foreclosures to preserve capital and the | | | | flow of money came to a stand still. |
| proliferation of complex securitized loans have | | | | * TARP - Troubled Assets Relief Program. The one |
| conspired to stall markets and leave most wondering | | | | we're all most familiar with, TARP, was initially passed |
| what next? | | | | in October 2008 and intended to raise capital within |
| On the residential side of the equation the loss of | | | | the federal government for the purpose of buying |
| consumer confidence, jobs, and the disappearance of | | | | "toxic assets" from troubled financial institutions. |
| available loans halted an overheated market that | | | | However, nearly all of the initial $350 billion dollars was |
| ultimately left homeowners upside down on their | | | | used to recapitalize banks in exchange for preferred |
| mortgage and speculative investors holding a bag of | | | | equity investments (stock). Much to the ire of the |
| goods no one wanted to own. | | | | banks that accepted the handouts, this program is |
| Today we find glimmers of hope in the residential | | | | responsible for all the restrictions on executive pay, |
| marketplace. Mortgages have again become available | | | | bonuses, etc. It is also the money banks are hoping |
| to the low and middle markets of homes (in | | | | to repay now to avoid further government oversight. |
| Southern California that translates to homes priced | | | | * ARRA - American Recovery and Reinvestment |
| from $100,000 - $750,000), REO properties have | | | | Act. Often referred to as the Obama Bail Out Plan, |
| come to market at prices that allow many, previously | | | | ARRA provides $787 billion in stimulus, including $288 |
| priced out, to return in force. Further, private sellers | | | | billion in tax breaks aimed at consumers and small |
| have found themselves willing to narrow the gap | | | | business. The intent is to generate demand via |
| between expectations and what the market will | | | | consumption. These are also the funds that states |
| actually pay. Typically lagging economic trends by 6-9 | | | | are requesting for infrastructure projects, science, |
| months the commercial markets are expected to find | | | | job creation, health care, education and training, and |
| their stride once the overall economy begins to show | | | | energy related projects. |
| signs of life. Most "experts" now agree that will | | | | * TALF - Term Asset-Backed Loan Facility. This will |
| ultimately come by fourth quarter of 2009 or first | | | | allow the Federal Reserve to loan up to $1 trillion in |
| quarter 2010. Still, facing many variables with unclear | | | | money to private investors and financial institutions in |
| direction, there is much to sort out on that end. | | | | efforts to restart the market for newly issued asset |
| To address the financial mess, back stop the slide of | | | | backed securities (ABS, see above). These securities |
| temporary shortcomings, and to "grease the gears" | | | | will include loans on assets such as student loans, |
| of economic growth the Federal Government has | | | | credit card loans, and small business loans, residential |
| introduced stimulus packages with unprecedented | | | | and commercial real estate. |
| reach. The $450 billion in relief funds initially | | | | * PPIP - Public Private Investment Program. Aimed at |
| established under the Bush Administration, coined | | | | clearing existing real estate related loans and |
| TARP and TALF, were ultimately met with an | | | | securities from the balance sheets of financial |
| additional $787 billion termed the ARRA. Obama's | | | | institutions, the program hopes to encourage private |
| recovery plan includes many other confusing | | | | investment with government guarantees and cheap |
| acronyms including a PPIP to help address illiquidity | | | | leverage facilities provided through the US Treasury. |
| and pricing difficulties facing ABS markets including | | | | If successful the program will jump start investment |
| CMBS and RMBS, a move that left some wondering | | | | in the "toxic assets" initially targeted with TARP |
| why we don't just use the RTC ideas of the 1990's | | | | funds and create pricing mechanism for these |
| to meet the challenge head on. | | | | securities. Once a valuation procedure is established it |
| Ultimately the alphabet soup has left most Americans | | | | should encourage private capital to reemerge into the |
| wondering what in the heck everyone is talking | | | | marketplace and help re-start the stalled ABS market. |
| about? So let's shed some light on the new terms | | | | * LLP - Legacy Loan Programs. "Legacy" for assets |
| and attempt to explain their reach and purpose: | | | | already on the books at financial institutions, LLP |
| * ABS - Asset Backed Securities. This is the basic | | | | combines FDIC guarantees on debt financing along |
| stitch to this whole ensemble. When banks issues | | | | with equity from private investors and the US |
| consumers (you and me) loans for commercial real | | | | Treasury to support the purchase of existing |
| estate, homes, student loans, on credit cards, etc. | | | | troubled loans from insured depository institutions; |
| they pool them together in large groups, rate them | | | | these are the commercial banks like Bank of America, |
| according to risk of not being paid back, divide them | | | | Wells Fargo, et al that take deposits from everyday |
| into shares or stock, and then sell them to investors. | | | | Americans. It is one of the two programs under PPIP. |
| When consumers make payments on their loans as | | | | * LSP - Legacy Securities Program. Again termed |
| agreed investors of these stocks receive dividends | | | | "Legacy" to signify existing assets, the LSP is the |
| on their investment. Additionally, when the value of | | | | second program under PPIP which addresses the |
| the assets securing these loans increase the risk of | | | | loans that were securitized and sold as ABS on the |
| loan repayment goes down and the value of each | | | | secondary market. This program will combine |
| stock share goes up. Conversely, when consumers | | | | financing from the Federal Reserve and TALF with |
| stop making payments on loans or when the value of | | | | equity from the private sector and the US Treasury |
| the assets (homes, etc) become less than what the | | | | to buy troubled securities like CMBS and RMBS. |
| consumer owes, the dividends stop coming to the | | | | * RTC - Resolution Trust Corporation. No longer in |
| investor and ultimately the value of the stock share | | | | existence nor part of the current bailout programs on |
| becomes worthless... | | | | the table, the RTC is often referred to by |
| * CMBS - Commercial Mortgage Backed Securities. | | | | professionals and the media to compare methods |
| These securities are a subset of the ABS and work | | | | used in the last real estate crisis of the 1990's. The |
| in the same way I've mentioned above. Specifically, | | | | RTC was a federally chartered asset management |
| these securities are secured by commercial real | | | | company created to liquidate the real estate assets |
| estate such as retail centers, office buildings, | | | | foreclosed upon by failed Thrifts and S&L's |
| apartment buildings, etc. | | | | declared insolvent during the Savings and Loan Crisis |
| * RMBS - Residential Mortgage Backed Securities. | | | | of the 1980's. Simply put the RTC brokered deals |
| Again a subset of the ABS group, these securities | | | | between failed institutions and the private investment |
| are secured by residential mortgages both single | | | | companies that ultimately purchased the assets. |