The US Federal Reserve board has extended the bailout programme to the commercial real estate sector and allowed it to access the Term Asset-Backed Securities Loan Facility (TALF) - an emergency programme set up last year to save the credit markets from the global financial crisis.

''Starting in June, commercial mortgage-backed securities (CMBS) and securities backed by insurance premium finance loans will be eligible collateral under the Term Asset-Backed Securities Loan Facility (TALF),'' the Fed said in a release.

The market for commercial property has been at a standstill since mid-2008 and Fed expects the inclusion of commercial property as eligible collateral for TALF loans will help prevent defaults on economically viable commercial properties, increase the capacity of current holders of maturing mortgages to make additional loans, and facilitate the sale of distressed properties.

Commercial property accounted for almost half of new commercial mortgage originations in 2007. 

According to the Fed release, more than 1.5 million loans financed by insurance premium are extended each year to small businesses so they can obtain property and casualty insurance.

The loans, mostly funded through the asset-backed securities market, have become more expensive and more difficult to obtain since the shutdown of that market. The Fed hopes inclusion of insurance premium as TALF-eligible collateral will facilitate the flow of credit to small businesses.

The Fed also authorised TALF loans with maturities of five years against the current maturities of three years. These loans will be available from June for financing purchases of CMBS, ABS backed by student loans, and ABS backed by loans guaranteed by the small business administration, the release said.

The Fed indicated that up to $100 billion of TALF loans could have five-year maturities, adding that it would continue to evaluate that limit. Part of the interest on collateral financed with a five-year loan may be diverted toward an accelerated repayment of the loan, especially in the fourth and fifth years. 

Under the TALF facility announced on 24 November 2008, the Federal Reserve Bank of New York extended loans secured by `AAA'-rated ABS backed by newly and recently originated loans. On 10 February 2009, the Fed announced that it is prepared to undertake a significant expansion of the TALF. Friday's announcement marks another step along that expansion.