Understanding the U.S. government’s various financial stability programs can be difficult, to say the least. Acronyms like TARP, TALF, PPIP, and CAP litter today’s headlines, but exactly what these programs do—and how they do it—isn't always easily digestible. So, APARTMENT FINANCE TODAY set out to define these terms and offer a primer on what they mean to multifamily borrowers.


First, TARP and TALF are separate programs with related missions. TARP is aimed at the institutional level—shoring up a financial institution’s health with an infusion of capital, for instance—while TALF is aimed more at the loan-level and charged with reviving the CMBS market.

But there is overlap between the two. The programs are somewhat fluid and interactive, in that some TARP funds are used in TALF programs, and some programs that began under TARP, such as the Legacy Securities Program, are now also part of TALF.

TALF is basically a loan program for CMBS investors. “The essence of TALF is that an investor can get a good loan to buy AAA-rated securities,” says Jamie Woodwell, vice president of commercial real estate research at the Washington, D.C.-based Mortgage Bankers Association (MBA).

Under TALF, borrowers can finance CMBS purchases with a three- or five-year nonrecourse loan (priced at the LIBOR swap rate plus 100 basis points) provided by the government. The hope is that by providing investors with capital to make new CMBS purchases, investor demand for those securities will increase, lowering the price of new conduit loans.

Basically, the CMBS market works by recycling money. Institutions lend money to the borrower, make money by securitizing the loans, and use that capital to make more loans. But since investor demand for CMBS has dipped precipitously in the past 18 months, the recycling of usable capital has stopped. TALF hopes to start that cycle up again.

Legacy TALF vs. LSP

The initial intent of TALF was to provide loans for investors buying new CMBS (anything issued this year). Those pools would be made of loans that were closed no later than last June. But in May, the Federal Reserve expanded the program to include legacy CMBS issued before 2009. This dovetails somewhat with the Legacy Securities Program (LSP), a component of the Public Private Investment Partnership (PPIP) that provides financing to investors looking to buy “older, vintage” CMBS.

Still, there are some key differences between the TALF program and the LSP. The legacy securities targeted by TALF have to be AAA-rated today: the legacy securities targeted by PPIP had to be AAA-rated at issuance, but don’t need to be AAA-rated today. This has particular significance now that Standard & Poor’s is getting ready to institute new ratings methodologies that would likely downgrade many issuances done between 2005 and 2007, thereby making them ineligible for TALF funds, and sending them to PPIP.

Another key distinction between TALF legacy securities and the LSP is the buying power of investors. While TALF offers low-cost loans, PPIP offers loans and equity capital to investors. So, a PPIP investor would be able to leverage $7 into $100 of buying power, while TALF investors would need about $15 for $100 of buying power. Yet another key difference is who is eligible to participate: only five firms will be selected to participate in PPIP, but TALF is open to any firm that meets the government’s criteria.

Legacy Loans Program

The PPIP’s Legacy Loans Program (LLP) is similar to the Legacy Securities Program. The LLP seeks to create a market for legacy loans—loans made by a portfolio lender, which are held on its books—by marrying government capital with private investor capital. The LLP has stalled, however. In early June, a pilot sale of legacy loans was pushed back indefinitely. Banks are concerned they won’t achieve the prices they’re looking for, and investors are wary of the consequences of partnering with the government, particularly as it concerns executive compensation, according to industry watchers. o additional clarity is needed before the LLP program will get off the ground.

Where the Rubber Meets the Road

The first deadline for applying for TALF funds is June 16, although exactly which securities will be sold under TALF is still unclear.

TALF has already been active in spurring investment on consumer loans such as student and auto loans and credit card debt. The spreads on some of the first few issuances were wide—600 basis points (bps), for example—but tightened with each new issuance until they reached about 200 to 300 bps.

The first real test of TALF's effectiveness on the CMBS industry is still a few months off. Originators are only now getting ready to make new loans to be securitized, and the process of closing, pooling, and securitizing these loans takes time. “You will start to see some new loans, which are intended to be securitized in the marketplace this summer, and the securitization would take some period of time after that,” says Spencer Levy, senior managing director of CBRE’s Restructuring Services Group, based in Washington, D.C. “So we should see the first signs of success or failure around September at the earliest.”

The MBA has been encouraged by the investment firms that are now starting funds to get into the TALF business. For instance, Standish Mellon Asset Management Co. announced a two-pronged investment strategy around TALF on June 4. The first strategy will target new issues of CMBS, and the second is an expanded TALF strategy that includes legacy assets.

“What you’ve got now is the beginning of the construction of an industry around the TALF model, so that when it starts up, they can pull the trigger,” says Jan Sternin, the MBA’s senior vice president of commercial and multifamily research. “They’re talking about how to utilize the model, and not when the model will come, and that’s a positive step.”

For a full glossary of terms related to TARP and TALF, click here.