UPDATE 2-Fed to take riskier mortgages to aid dealers

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By Richard Leong

NEW YORK, March 20 (Reuters) - Dealers can pledge an even broader array of shadowy collateral to get a portion the $75 billion in funding the U.S. Federal Reserve will dole out next week, the U.S. central bank said on Thursday.

In addition to poorly performing triple-A rated residential mortgage bonds, the Fed said it will now also take equally troubled bonds backed by mortgages for shopping malls and office buildings.

The market for commercial mortgage bonds has weakened in the wake of the mortgage market meltdown and U.S. banks may be forced to take large write-downs on those assets.

However, the banks can now exchange their triple-A rated, but poorly performing, commercial mortgage bonds for low-risk U.S. Treasury bonds at the March 27 auction of 28-day loans.

"It looks like they (the Fed) are doing all they can to pour water on the fire," said Chris Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.

The Fed's first Term Securities Lending Facility (TSLF) auction next week is part of a $200 billion program to aid the Wall Street dealers -- primarily investment banks -- that do business directly with the Fed.

Most investment banks are significantly exposed to the commercial mortgage bond market, but many are trying to hedge that exposure or sell the underlying assets.