The Federal Reserve has chosen a collateral monitor for new and existing securities backed by commercial real estate loans as part of a program through which it plans to offer investors cheap loans to buy such bonds.

Trepp LLC will "assist the New York Fed by providing valuation, modeling, analytics and reporting" on these commercial mortgage-backed securities, the central bank said Tuesday, the deadline for loan applications under the newly created commercial mortgage bond portion of the bank's Term Asset-Backed Securities Loan facility, or TALF.

The Fed is being very cautious in selecting the bonds for which it will offer non-recourse loans to investors. Bonds must be rated triple-A by at least two of five rating agencies, and may not be on watch for downgrade.

The central bank may also reject the bonds based on other factors such as "unacceptable performance of the mortgage loan pool" or "unacceptable concentrations" of borrowers or property types and geographic regions.

Trepp's role is to help with monitoring collateral to protect the central bank from losses.

Trepp "will not establish policies or make decisions for the New York Fed, including decisions whether to reject a CMBS as collateral for a TALF loan," the bank said Tuesday.

According to the firm's Web site, Trepp is a "provider of commercial mortgage bond securities and commercial mortgage information, analytics and technology to the global securities and investment management industries."

The Fed may use the services of other collateral monitors in connection with TALF, the central bank said.

TALF was originally targeted at consumer lending, where the program has had some success in stimulating issuance and tightening risk premiums, which in turn should improve consumers' access to credit and make it more affordable. New consumer-loan backed deals have totaled $56 billion so far this year, with the bulk of them eligible for funding through the TALF program. The sector was frozen last year at the height of the credit crisis.

Reviving the struggling commercial mortgage bond market, however, will take more time. So far there hasn't been any new issuance of securities because commercial real estate lending, to build hotels and malls, for example, has slowed significantly.

In contrast to the consumer TALF, the Fed will also offer loans for existing CMBS, likely beginning in late July.

-By Anusha Shrivastava, Dow Jones Newswires; 201-938-2371; anusha.shrivastava@dowjones.com