Commercial mortgage backed securities (CMBS) have also been infected, although there is no obvious connection between overstretched residential borrowers and the markets for office and retail space.
He says the program could be expanded over time to include commercial mortgage-backed securities, certain residential mortgage-backed securities and other assets.
The facility may be expanded over time and eligible asset classes may be expanded later to include other assets, such as commercial mortgage-backed securities, non-agency residential mortgage-backed securities or other asset classes.
The insurer covered billions of dollars in risky derivatives on commercial mortgage-backed securities that also went bad.
Then there are questions of who would buy Lehman and what the size of its commercial mortgage-backed securities write-down will be next week.
Buyers of retail property have been taking advantage of debt financing available from the sale of commercial mortgage-backed securities, a market that has been gathering steam.
But with the commercial mortgage-backed securities markets virtually shut down, the buyers could turn to their own balance sheets or to life companies and other institutional investors for support.
The Federal Reserve is widely expected to help by making commercial mortgage-backed securities eligible for its programme (known as the TALF) to support the securitisation market with subsidised loans.
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The settlement terminates credit default swaps Morgan Stanley purchased from MBIA to protect holdings of commercial mortgage-backed securities and resolves the pending litigation between the two and will see an undisclosed cash payment from the bond insurer to the bank.
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Even though default rates on commercial mortgage-backed securities are less than 1.0%--compared with higher than 20.0% for high-risk home loans--that level is expected to rise as the global economic slowdown makes business conditions increasingly difficult for hotels, retailers and other companies carrying office building mortgages.
Finally, its support of the financial system with massive asset purchases in frozen markets, including commercial paper, mortgage backed securities, and currently Treasury notes.
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In America, capital markets matter more, so the Fed had to get its hands dirtier by buying commercial paper and mortgage-backed securities.
It involved investment banks failing due to traditional commercial banking activities, such as issuing and holding mortgage backed securities.
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They priced portfolios of mortgage-backed bonds, corporate loans and securities backed by commercial real estate, and provided more liquidity to debt markets.
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