Report Calls FADA ‘Bloated Bureaucracy’

The publication Friday of a highly critical congressional report on a federal agency created to manage and sell property from insolvent savings institutions was followed by an announcement that the agency’s chairman had resigned last month.

The report, by the staff of the House Banking Committee, charged that the Federal Asset Disposition Assn. has become a “bloated bureaucracy” that wastes millions of dollars of public money.

Committee Chairman Fernand G. St Germain, (D-R.I.), in a written statement accompanying the report, said FADA should be phased out as soon as possible and its duties reassumed by the Federal Savings and Loan Insurance Corp., which backs deposits in federally insured S&Ls.;

The House report was dated March 17, but it was not made public until Friday, when it was published in the Congressional Record.

Zellars Named Replacement

In a letter dated March 31 but not released by FADA until Friday, the agency’s chairman, William F. McKenna, submitted his resignation, effective immediately.

McKenna, a Los Angeles attorney, wrote that his resignation “is intended to open the way” for the Federal Home Loan Bank Board, which regulates 3,147 federal thrift institutions, to pick his replacement and “achieve maximum capability with FADA’s new executive command and chartered course.”

He has been replaced, on an acting basis, by Vice Chairman John B. Zellars, chairman of Georgia Federal Bank in Atlanta.

McKenna was previously chairman of the Federal Savings and Loan Advisory Council, an industry group that advises federal regulators. His law firm represents some of the largest S&Ls; in the industry and the creation of FADA was his idea.

The stated purpose of FADA is to bring money into the S&L; insurance fund. The fund is short of capital to resolve the problems of soaring insolvencies, particularly in Texas and other states hard hit by depressed oil prices.

However, the House report said “the unspoken agenda was to give the savings and loan industry, more specifically a small but very powerful subgroup of the industry, a major say in how the thrift industry’s problems would be resolved.”

The report said it was “difficult to determine” how much money FADA has wasted, but it said has directly charged $20 million to receiverships set up to liquidate failed S&Ls;, and it has passed on $51 million in subcontractor costs. Despite this income, FADA is more than $15 million in the red, the report said.

Money spent by the receiverships is deducted from what is eventually left for the creditors of failed institutions, including depositors over the insurance limit of $100,000.

Gerald Carmen, who took over as FADA chief executive in February, said he is working to remedy the agency’s faults.

Payroll Reduced

“We know there have been problems with FADA and that’s why they brought me aboard,” he said. “I have not read the report, but when I do read it, problems that are real and exist, we’re going to fix.”

Carmen said he hoped within six months to resolve “long-range and strategic” questions, such as whether FADA should be merged with the insurance fund, be completely privatized or continue under its present structure.

He said he has reduced the FADA payroll from 388 to 370 employees, saving $1 million a year and is consolidating FADA office space for a reduction of 16,000 square feet. He predicted that FADA would be in the black for the first quarter of the year.

“I think we’re starting to bring it under control,” Carmen said.

However, the House report described reform efforts so far as “cosmetic” and as public relations “intended to defuse criticism.”

Among the other findings of the House report:

- FADA employees awarded contracts, without bidding, to former business associates.

- “FADA officials lived first class and received excessive salaries and bonuses.” It said its top 32 executives were paid over $3 million in 1987, and its total payroll of $22 million went to more 380 employees.

- From its creation in late 1985 to the end of last year, it managed to sell only $124 million of the property in its care.

- “Certain FADA employees continue to maintain financial interests in firms that could benefit from FADA contracts.”

William Fulwider, a spokesman for the bank board, said the information in the House report is dated. He said FADA is reducing its expenses and is cooperating more fully with FSLIC.

Mark Clark, a vice president of the U.S. League of Savings Institutions, the largest trade group in the industry, said league officials would have no immediate comment.