The New York Federal Reserve rejected five while accepting 46 bonds for the January Legacy CMBS TALF subscription period.

The five tranches rejected this month were: BACM 2006-2 A4; BACM 2006-6 A3; BACM 2007-2 A2; CSMC 2006-C4 A3; and  WBCMT 2007-C33 A3.

Bank of America Merrill Lynch analysts said that after seven rounds of legacy TALF, they still have difficulty explaining the New York Fed's rational in deciding the accepted/rejected list.

The analysts reported that this month, they were also somewhat surprised at the rejection rate. With five of 51 bonds rejected this month, the rejection rate of nearly 10% was much higher compared with the prior month.

Analysts think that the odds favor the legacy TALF program expiring at the end of March as currently scheduled.

One of the bonds rejected this month, BACM 2007-2 A2 had been rejected in the November subscription period, they noted. The same bonds were accepted in the October cycle. This is the first time, analysts said, that they have witnessed a rejected bond re-submitted.

Additionally, there were two other bonds that were rejected this month, after being accepted in prior months, BofA Merrill analysts said.

WBCMT 2007-C33 A3 was accepted back in August. BACM 2006-2 A4 was not only accepted in October but the A3 class from the same deal was accepted this month.

Analysts think that a possible explanation behind these choices is the Fed rejects certain tranches based on having too much exposure to certain deals or certain tranches within a deal.  They speculated that the Fed is using a combination of concentration and credit risk metrics to decide what collateral is acceptable.

"We also believe the Fed is biased toward accepting shorter average life bonds and those with simpler structures," BofA Merrill analysts wrote in the report.

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