The Federal Reserve of New York is apparently just now realizing that Commercial Real Estate collateral is more than just wishful thinking. In a press release issued yesterday, the NY Fed announced that it had picked TREPP to serve as a collateral monitor for the CRE Hail Mary pass better known as TALF. One would have expected the Fed to actually have some sort of algorithmic modeling of CMBS cash flow projections before it had decided to dedicate $1 trillion to this neutron bombed segment. Of course, always better late than never. From the press release:
The TALF is designed to increase credit availability and support economic activity in part by facilitating renewed issuance of consumer and business asset-backed securities (NYSE:ABS) and CMBS. Trepp is an established provider of information and analytic services to the CMBS and commercial mortgage finance industries. As a collateral monitor for the newly issued and legacy CMBS assets, Trepp will assist the New York Fed by providing valuation, modeling, analytics and reporting, as well as advising on these matters. Trepp will not establish policies or make decisions for the New York Fed, including decisions whether to reject a CMBS as collateral for a TALF loan or exclude loans from mortgage pools.
I may be rusty, but last time I used TREPP, it told me the CMBS market was overoptimistic by about 1,000 bps. And that was when AAA spreads were at 1,000. One would hope not too many tweaks occur to the TREPP engine as it is "ported" over to the Fed: in that case there may be some hope that Dudley, Geithner et al, realize just how massive cumulative losses will be on all sorts of vintages and classes and will finally abandon the zany TALF plan altogether. Or if not, as Wall Street Pro says, perhaps they will let the taxpayer put the last dollar in to the TALF purchase (displacing the 12x leveraged chunk from various hedge funds), and allow them to actually pocket the upside instead of just footing the downside.