Seidman Says U.S. Should Sell Off S&L; Real Estate Quickly

The government’s portfolio of real estate from seized savings and loan associations is $16 billion and growing rapidly, but only $2 billion in property has been sold so far, S&L; bailout chief L. William Seidman told Congress on Friday.

The shopping centers, office buildings, homes and condominiums must be sold quickly because it costs the government about 10% a year to hold them, Seidman said. And it is futile to hope that depressed real estate markets will revive quickly enough to boost the eventual sales prices, he warned.

“We are in business to sell assets, not to bet on market movement,” Seidman told a special S&L; task force of the House Banking Committee.

Seidman, who is leaving his job under White House prodding, told committee members he had not yet officially resigned. He said he will not leave until he finishes selling or closing 140 S&Ls; seized by the government.

Committee members lavished praise on Seidman, who serves simultaneously as chairman of the Federal Deposit Insurance Corp., which guarantees bank deposits up to $100,000, and the Resolution Trust Corp., which dismantles defunct S&Ls;, repays depositors and attempts to sell the assets.

“I worry about the independence” of the two agencies without Seidman at the helm, said Rep. Bruce Vento (D-Minn.), the task force chairman. “The erratic implementation (of the S&L; rescue law), the indifference, inattention and internal squabbling of the Administration have unfortunately made a tough job yet more difficult.”

“You are a model of government service,” Rep. Charles Schumer (D-N.Y.) told Seidman. “The Administration should be on its hands and knees begging you to stay.”

Seidman diplomatically avoided the opportunity to attack the Bush Administration for leaning on him to resign, just nine months after putting him in charge of the financial cleanup of hundreds of crippled thrift institutions.

Instead, he focused on the need to accelerate real estate sales. The $16 billion in properties represents only the buildings and land over which the government has undisputed ownership, and the figure is likely to grow significantly.

Thrifts seized by the government have an additional $150 billion in assets, mainly as mortgage loans. The vagaries of the economy and local real estate markets will determine how many of these loans ultimately go into default, with the properties foreclosed and offered for sale by the government.

Seidman said he wants to accelerate real estate sales before the government is figuratively buried under a pile of properties.

The S&L; rescue law says the government should sell real estate for at least 95% of market value in the “distressed” states of Arkansas, Colorado, Louisiana, New Mexico, Oklahoma and Texas, and charge at least 90% in all other areas.

But fair market value is an elusive concept, especially in a depressed area filled with foreclosed properties.

Seidman wants to cut prices by 15% if the properties do not sell within four to six months and by an additional 5% after three more months. If the properties still do not sell, he said, the RTC should seek another appraisal “in light of this evidence from the marketplace.”

The proposed new sale policies, which the RTC board will consider next week, would provide much more freedom to reduce prices. The RTC would be given “the flexibility to determine a lower fair-market value,” Seidman said.

“Like most other merchandise, the longer S&L; assets sit on the shelf, the more they deteriorate,” Seidman said. “If a property does not sell, probably it is because we are asking too much in the marketplace.”

In addition, Seidman wants to sell selected groups of related properties at auctions to speed up the disposal of the growing pile of assets. The first such sale will take place this summer, with $200 million in properties on the block in the biggest real estate auction in history.

But it will take good prices to attract buyers, whether in direct sales or at auctions, the RTC chairman said.

Seidman staunchly defended the tough new approach taken by federal regulators toward examining the loan portfolios of banks and thrifts. By insisting that many loans be reclassified as relatively shaky, examiners are causing institutions to be much more wary of making loans, even to once-favored customers.

Seidman and other regulators blame the easy credit environment of the 1980s, when S&L; managers took unaccustomed risks in making loans, for many of the costly collapses in the thrift business.