Wouldn’t Dump Repossessed Real Estate : Bush S&L; Plan May Rule Out Fire Sales

From Associated Press

The Bush Administration is considering an addition to its savings and loan plan that would be aimed at discouraging the government from dumping the repossessed real estate it inherits from failed institutions, an industry official said Monday.

Administration officials, in response to members of Congress worried about the potential of real estate fire sales, are examining proposals to combine federal and state money to pay for a real estate maintenance program, according to Kenneth A. Guenther, executive vice president of the Independent Bankers Assn. of America.

As part of the program, some of the real estate could be used for day-care centers, food programs or in some other way that meets President Bush’s “kind, gentler” social objectives, he said.

“Thought is being given to it. Very, very, high-level thought,” Guenther said.


In other S&L; developments:

- Rep. Henry B. Gonzalez, (D-Tex.), chairman of the House Banking Committee, introduced the Administration’s S&L; proposal in the House on Monday. It was referred to Gonzalez’s committee, defusing a jurisdictional dispute between the banking panel and the House Ways and Means Committee that could have delayed congressional action.

Rep. Dan Rostenkowski, (D-Ill.), chairman of Ways and Means, had sought joint jurisdiction, arguing that a key element of the S&L; plan provided for raising money through bond sales and that his panel’s turf covered revenue raising.

- Six Washington-based “think tanks"--ranging from the conservative Heritage Foundation to the liberal Brookings Institution--issued a statement saying the Bush proposal doesn’t provide enough money or reform.

Gonzalez and other legislators from Texas are worried that if regulators try to sell off repossessed real estate too fast, it could collapse the already weak real estate market in the state.

The Federal Deposit Insurance Corp., the commercial bank regulator that under Bush’s restructuring plan would also take the lead in resolving S&L; problems, has historically sold repossessed property faster than S&L; regulators.

Guenther described the possible addition of a property management program to the Administration plan as a contingency rather than a Bush initiative.

“They want their plan (S&L;) whole, but at the same time . . . if the Congress moves in this direction, they have to be prepared,” he said.


Wants Flexibility

An Administration official, who spoke on condition of anonymity, said the Administration wants to preserve regulators’ discretion to judge the best time to sell.

“I don’t think anyone anticipates that real estate would be dumped.” the official said. “But we would prefer the flexibility to sell as market conditions dictate and permit. That’s the best way to protect the taxpayers’ interest as well as that of local markets.

“We would rather not see this turn into an all-purpose welfare program. . . . We shouldn’t use the management program of the FDIC to try to accomplish social engineering,” he said.


Two Texas Republicans--Sen. Phil Gramm and Rep. Steve Bartlett, both members of the banking committees--agreed that it would be unwise to dictate when or how regulators can sell property.

In the last several weeks, FDIC Chairman L. William Seidman has met with Texas legislators, including Gramm, to reassure them his agency will not sell at below-market prices.

In a speech last week, Seidman said: “If we can’t obtain today’s fair price, we’ll hold on.” But he warned that holding onto property for too long would create an “overhang” on the real estate market and hurt local economies.

On another topic, Seidman outlined a compromise over the so-called logo issue. Currently, banks and S&Ls; are insured by separate insurance funds: FDIC for banks and FSLIC, or Federal Savings and Loan Insurance Corp., for S&Ls.;


Bush would keep the funds separate but have FDIC administer both. Originally, the Administration plan would have had both banks and S&Ls; carry the FDIC insurance logo. Banks, not wanting to be publicly identified with S&Ls;, objected.

Seidman said under the compromise “both institutions will display the FDIC logo, but as part of that logo, the institution will have to identify whether it is part of” the bank fund or the savings and loan fund.

The six groups offering a critique of the Bush plan were the National Taxpayers Union Foundation, the Cato Institute, American Enterprise Institute, the Competitive Enterprise Institute, the Heritage Foundation and the Brookings Institution.

They said Bush’s plan to raise $50 billion for S&Ls; over three years does not provide money fast enough. They said the government should spend $50 billion by the end of the 1989 fiscal year on Sept. 30 and then assess how much more it needs.


The groups urged Congress to fight industry attempts to weaken the stricter capital standards of the Bush plan and advised it to add the following reforms: market-based accounting, risk-based deposit insurance premiums and limits on deposit insurance. It said Congress should not attempt to turn back the clock by restricting S&Ls; mostly to home mortgage lending.