Commercial real estate lending program picks up

WASHINGTON — Investors’ appetite picked up this month for a government program aimed at spurring lending in the troubled commercial real estate market.

The program is part of larger consumer lending effort called the Term-Asset Backed Securities Loan Facility, or TALF, which figures prominently in efforts by the Fed and the Obama administration to ease credit, stabilize the financial system and help the economy.

The Federal Reserve Bank of New York said Thursday that investors requested $668.9 million worth of loans to buy securities backed by commercial real estate loans that were made months or years ago. None of the money was for newly issued securities.

Investors took a pass when the program debuted last month and only newly issued securities were available.

There’s a much bigger market and more demand for funding the older securities, said Michael Feroli, an economist at JPMorgan Economics. “You aren’t seeing a lot of new deals, so there’s not much out there to fund,” he added.

The Fed hopes the program will boost the availability of commercial real estate loans, help prevent defaults and facilitate the sale of distressed properties.

Delinquency rates on commercial loans have doubled in the past year to 7 percent as more companies downsize and retailers close their doors, the Fed has said. Small and regional banks face the greatest risk of severe losses from commercial real estate loans.

The TALF has the potential to generate up to $1 trillion in lending for households and businesses. Besides commercial real estate, investors can use loans to buy securities backed by, among other things, auto and student loans, credit cards, business equipment and loans guaranteed by the Small Business Administration.

Meanwhile, the Federal Reserve in Washington said that banks reduced borrowing from its emergency lending facility over the past week and cut back on other programs designed to ease the financial crisis, encouraging signs that some credit stresses are easing.

The Fed said commercial banks averaged $34.46 billion in daily borrowing over the week that ended Wednesday. That was down from $34.97 billion in the week ended July 8.

The identities of the financial institutions are not released. They pay just 0.50 percent in interest for the emergency loans.

The weekly lending report also showed the Fed’s net holdings of “commercial paper” averaged $112 billion, a decrease of $1.8 billion from the previous week.

Commercial paper is the crucial short-term debt that companies use to pay everyday expenses, which the Fed began buying under the first-of-its-kind program on Oct. 27, a time of intensified credit problems. The central bank has said about $1.3 trillion worth of commercial paper would qualify.

The report also showed the Fed boosted its purchases of mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. They averaged $489 billion over the past week, up $26.6 billion from the previous week. The goal of the program, which started on Jan. 5, is to drive down mortgage rates and help the housing market.

Mortgage rates dipped for the third straight week, edging closer to a record low of 4.78 percent in April.

Rates on 30-year home loans dropped to 5.14 percent, from 5.20 percent last week, Freddie Mac reported Thursday.

Squeezed banks borrow from the Fed when they have trouble getting the money elsewhere. At the height of the financial crisis last fall, investors cut banks off and shifted money into safer Treasury securities. Financial institutions hoarded much of their cash, rather than lending it to each other or customers. That lockup in lending has contributed to the longest recession since World War II.

Critics worry the Fed’s actions have put billions of taxpayers’ dollars at risk. Bolstering those concerns, the assets the Fed took on last year when it bailed out Bear Stearns and insurer American International Group Inc. have dipped in value.

The report also said that credit provided to AIG averaged $43 billion for the week ending Wednesday, about the same as last week.

The central bank’s balance sheet stands at $2.011 trillion, up from last week. The balance sheet has more than doubled since September, reflecting the Fed’s many unconventional efforts — various programs to lend or buy debt — to mend the financial system and lift the country out of recession.