The New York Federal Reserve regularly conducts a risk assessment of the proposed collateral as part of the process for reviewing requests for Term ABS Loan Facility (TALF) loans to be backed by legacy CMBS.
This assessment looks at whether the estimated value of the CMBS would fall below the loan amount if economic conditions were to turn out to be much worse than expected. The New York Fed gets these “stress value” estimates from two separate vendors.
The government agency reviewed the stress value estimates and recently identified and corrected a methodological error.
It has determined that because of this error, one legacy CMBS — CUSIP 059497AX5 — was accepted as collateral that would not have been accepted using the current methodology.
But, the New York Fed continues to expect no losses on the loans backed by this CMBS since the stress value is based on extremely unlikely economic circumstances, and due to the market value of this CMBS being well above the TALF loan amounts.
The New York Fed will not accept CMBS CUSIP 059497AX5 as collateral for new TALF loans at or around its current market price. It also reserves the right to reject any legacy CMBS in the future, whether or not the legacy CMBS was previously accepted.