TALF Spurs Deutsche to Start Loan Program

Prompted by the new government program that will finance buyers of commercial MBS, Deutsche Bank has rolled out a program that aims to originate fixed-rate loans of up to $200 million for securitization.

The fact that a major lender is willing to resume warehousing mortgages for securitization could mark an initial step toward a revival of the commercial MBS market, which has been frozen since mid-2008. But Deutsche is hedging its bets by offering strict terms and relatively high rates - features that would make it more palatable for the bank to retain the loans if necessary, but also might tamp down borrower interest.

The program was being touted this week in an announcement circulated by a loan brokerage. "The lender is prepared to close these loans on their warehouse lines prior to securitization," the brokerage said. The announcement didn't identify the bank, but several market sources said it was Deutsche. There was no indication how much the bank is willing to warehouse overall. A Deutsche spokesman declined to comment.

Deutsche is pitching nonrecourse loans with rates of 9-10%, terms of 3-5 years and a maximum loan-to-value ratio of 70%. The loans would carry a 30-year amortization schedule. Office, industrial, retail and hotel properties would be eligible for financing.

Those terms would fit the parameters of the Federal Reserve's Term Asset-Backed Securities Loan Facility. The TALF program was set up to spur originations by giving lenders an exit strategy for their loans. The thinking is that if low-cost government financing would encourage investors to buy asset- or mortgage-backed bonds, lenders would resume originating. The program initially applied to triple-A bonds backed by newly originated consumer and small-business loans. The Fed announced two weeks ago that the initiative would be expanded to include commercial mortgages in June.

As previously reported, Deutsche, Goldman Sachs and J.P. Morgan have already held preliminary discussions with Fed officials about possible securitizations that would be eligible for TALF financing.

One veteran broker described Deutsche's loan program as significant because it indicates the bank believes it will be able to sell TALF-eligible bonds. "This is the beginning of CMBS 2.0," he said.

But the broker added that borrowers would likely view the loan coupons as hefty. "It would be a bold move if they were offering rates in the 7% range," he said. "They are originating it at 9-10%, so they know they [will have an adequate return on any loans they must retain] if the expected demand for the new CMBS issuance does not materialize."

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