The Obama administration may soon announce an extension program for the Troubled Assets Relief Program, according to government sources, and is hoping to garner support for the controversial program by using leftover funds from the last bailout to pay down the national debt, the Washington Post reported. No concrete decision has been made regarding the extension, sources said, as the administration weighs the risks of prolonging the program. One key problem could be stopping lawmakers from tapping the leftover funds — which would be earmarked for debt reduction under the extension plan — for infrastructure and other projects. With national unemployment at its highest level in 26 years, many members of congress are looking for ways to use unspent bailout money for programs to aid the job market, according to Rep. John Larson. “We want to look at how Wall Street can refund Main Street,” Larson said.

Not that there is ever a good time for a major commercial lender to file for bankruptcy per se, but the timing of CIT Group’s announcement is particularly bad because of the high-pressed holiday shopping season, according to ABC News. The firm, which provides financing for small- and medium-sized businesses and real estate, has not only lost the $2.33 billion of taxpayer money it received under the Troubled Asset Relief Funds program, it’s also left some of its clients in a tough spot for the winter retail season. Some 300,000 U.S. stores relied on the firm for loans to keep shelves full. Coming on the heels of CIT’s filing will likely be a “volatile” week on Wall Street, as employment figures are expected to come in on Friday.

Manhattan-based commercial lending firm CIT Group filed for a prepackaged bankruptcy yesterday in the Southern District of New York, marking one of the biggest filings in U.S. history. The worldwide credit crisis and recession were named as the two biggest culprits in the downfall of one of the nation’s largest commercial lenders. The group received $2.33 billion last December as a part of the federal government’s Troubled Asset Relief Program, but the aid did little to stymie the rapid decline in value among the firm’s many investments. The loss is one of the biggest for the TALF program so far. While many of CIT’s creditors have reportedly agreed to the reorganization program, Jack Williams, a bankruptcy law professor, told Reuters that the bankruptcy could do even more to harm CIT’s stability. “The longer a financial institution stays in bankruptcy, the more the value of the business dissipates,” Williams said. “It’s faith and trust and perception that are so important for a financial institution.” The firm reportedly hopes to reduce its debt by $10 billion in the bankruptcy. CIT had $71 billion in assets and $64.9 billion in debt, according to mid-year figures.

From left: Whitney Wilcox, Isaac Zion, Howard Nottingham, Jay Koster, Steven Koppel, at last night’s REBNY meeting

Lenders mulling which borrowers to chase into foreclosure will be considering not only the viability of the struggling real estate projects but also the relationship with the developers, finance experts said at a panel last night held at the Real Estate Board of New York. While most lenders do not want to take back distressed properties and are content to extend loan terms, in certain situations they will move against the owners. In those cases, aggressive efforts to take back properties will at times be made based on the level of business the borrower has with the lender, said panelist Steven Koppel, partner at law firm Jones Day. “A strong bank may have more of an appetite to force the issue, especially if the borrowing entity is not a client they want in the future or is in an asset class they are not really interested in,” Koppel said. Comments

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Shari Olefson, a real estate attorney with Fowler White Boggs and David Wind, president of Guaranteed Home Mortgage Company

Mortgage-backed securities, the villains of the recent financial meltdown, are back. But while government officials hoped their re-emergence would result in more bank lending, to date, that hasn’t been the case. Some $94 billion in new deals came to market in the third quarter, according to Dealogic, a firm that tracks financial data. That’s a far cry from the $339 billion issued during the height of the market in the second quarter of 2007, but it’s a heck of a lot more than the $9 billion done in the fourth quarter of last year. Nearly all of the deals that have surfaced are backed by residential rather than commercial loans. The securities’ re-emergence is a mixed bag. Many blame the securities for the market downturn. While it used to be that banks would originate loans and then package them to get them off their books, the securitization process became so lucrative, the tail began to wag the dog, with banks issuing loans just to feed the securitization machine. But the loans they extended became riskier and riskier and default rates are now at record levels. Indeed, some 11.6 percent of mortgage borrowers in the New York City area are currently underwater — a figure that could spike to 77 percent by the first quarter of 2011, according to Deutsche Bank. [more]

Yields on commercial mortgage-backed securities bonds, or CMBS, were
low compared to benchmarks set by U.S. programs aimed to help drive
demands, according to data from Barclays Capital. While the demand for
bonds slightly increased due to rising stocks and government programs,
late payments and a rise in delinquencies on commercial mortgages
created a “counterpoint to the rally,” according to Barclays analyst
Aaron Bryson. While the impact of TALF is “starting to fade,” according
to Bank of America analysts, the fourth round of the federal Term
Asset-Backed Securities Loan Facility, or TALF, financing is scheduled
to begin Oct. 21. Currently, U.S. commercial real estate prices are
down 40.6 percent from their peak in October 2007, according to Moody’s
Investors Service. [more]

The Fed announced today that it would extend the Term Asset-Backed Securities Loan Facility, or TALF program — an initiative meant to boost the struggling commercial real estate market — through mid-2010. The TALF program for newly issued commercial mortgage-backed securities will extend through June 30, past its original deadline of December 31, 2009. TALF programming for newly issued securities backed by auto, credit card, student and small business loans will continue through March 31. Fed officials said that the TALF would not extend for residential mortgage-backed securities, but that they would remain flexible on the issue pending market changes.

With landlords having troubles refinancing and $165 billion in commercial loans coming due this year, the commercial real estate market is likely to pose major problems to the recovery of the overall economy, Bloomberg News reported. At a meeting this afternoon, Fed Chairman Ben Bernanke and his colleagues are expected to talk about the uncertain future of commercial real estate. Term Asset-Backed Securities Loan Facility program and treasury purchases are set to appear on the agenda. After being expanded in June to cover commercial real estate, the TALF program is set to expire December 31, but many lawmakers are pushing to extend it for another year.

Federal Reserve Chairman Ben Bernanke said a potential wave of
commercial real estate defaults may present a challenge for the economy
and urged lenders to modify problem mortgages to avoid defaults.
Federal policy makers will extend the TALF, which began accepting
commercial mortgage-backed securities as collateral last month, if they
feel that the financial markets are still “some distance from normal
operation,” Bernanke said. Since the peak of the market, commercial
property prices have fallen 35 percent and more than $108 billion worth
of commercial properties are now in default, foreclosure or bankruptcy,
according to reports by Moody’s Investor Services and Real Capital
Analytics. Comments

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