White House to Order Immediate S&L; Asset Sales
The Bush Administration, under mounting pressure to increase the pace of its savings and loan bailout, will tell regulators to start immediately on the huge task of selling more than $300 billion in S&L; assets.
A strategic plan developed by the Resolution Trust Corp. Oversight Board directs regulators to begin selling real estate and other assets even before the government officially closes the S&Ls; owning the assets.
The Associated Press obtained a copy of the plan Monday.
Regulators “should . . . immediately begin shrinking such institutions’ balance sheets in a coordinated and orderly manner,” according to a final draft of the 91-page plan, scheduled for release by the end of the year.
The oversight board, headed by Treasury Secretary Nicholas F. Brady, sets policy for the Resolution Trust Corp., a new agency run by the Federal Deposit Insurance Corp.
As of Dec. 8, the RTC had control of 280 failed S&Ls;, having disposed of 33 since its creation by new legislation Aug. 9. It expects to get jurisdiction of at least another 220 insolvent thrifts.
Most of the 33 S&L; resolutions so far have involved transferring the deposits of the failed institution to a healthy bank or S&L;, leaving the government with the thrifts’ bad loans and repossessed real estate.
Critics say unless the RTC gets started on selling S&L; assets soon, the properties will deteriorate, driving up the taxpayer cost of the bailout.
Earlier this month, the Shadow Financial Regulatory Committee, a group of university professors and other private analysts, warned that if the RTC continues on its present course, it could soon exhaust its available cash.
In response, the oversight board said “the task facing the RTC is unprecedented in magnitude and complexity,” but nevertheless urged speed. The plan directs the RTC to develop a national program to sell S&L; assets even before the institutions are closed or sold to new investors. As part of that, it suggested packaging and selling mortgage loans owned by the thrifts.
The plan:
- Directs the RTC to keep a log, available to the public, of all contacts between the RTC staff and “senior public officials or their staff” intending “to influence a decision” of the RTC. The provision is intended to discourage influence-peddling.
- Gives the RTC a June 30 deadline to finish reviewing the bailout deals put together by its predecessor, the Federal Savings and Loan Insurance Corp.
- Tells the agency to “provide financing of (real estate) assets sparingly and only when necessary.” The financing should be considered a concession and be reflected in a higher purchase price for the property, it said. Without such financing--in effect a government loan--some analysts contend the agency won’t be able to sell many properties.
- Allows the RTC to sell a minority-owned thrift to another minority institution without opening the sale to non-minority bidders. It permits the agency to finance the sale, at market rates, for as long as nine months. In most cases, the RTC is forbidden from keeping an interest in institutions it sells for longer than six months.
- Orders the agency to make public all documents spelling out the terms of bailout deals, including the estimated cost to the government and the economic assumptions underlying the estimate.
Despite its length, the plan leaves a number of important issues unresolved.
For example, it tells the RTC to “develop a mechanism” to raise additional funds to finance S&L; bailouts until it can sell thrift assets. However, it gives the agency no guidance on the politically charged question of whether the additional funds should add to the federal budget deficit.
It also gives the RTC wide latitude in deciding how to sell insolvent S&Ls;, including selling the whole institution with good and bad assets, selling only the good assets and marketing the bad assets separately, keeping all the assets for later sale and dismantling the thrift and selling it branch by branch.
