Regulators Get OK to Reopen Deals : Thrifts: The Administration hopes to save taxpayers billions of dollars by renegotiating the hurried sales of ailing S&Ls; in 1988.

The Bush Administration on Thursday gave federal regulators authority to renegotiate the government’s controversial 1988 sales of insolvent savings and loans to private investors, promising billions of dollars in savings for taxpayers.

Negotiations can “commence immediately,” said Peter Monroe, president of the federal oversight board for the Resolution Trust Corp., which controls defunct S&Ls.;

In December, 1988, thrift regulators arranged the hurried sale of financially crippled S&Ls.; They couldn’t shut them down and pay off depositors because of a shortage of money in the federal deposit insurance fund, which guarantees deposits up to $100,000.

The now-defunct Federal Home Loan Bank Board, which regulated the thrift industry, decided that the only strategy was to find buyers for the ailing institutions.

To attract investors, the regulators offered complex guarantees to investors. The S&Ls; had billions of dollars in high-risk real estate seized when loans went bad. The government gave buyers guarantees against losses on these real estate portfolios. The government also issued high-interest notes to strengthen the weak finances of the thrifts.

The ultimate cost of government aid to persuade the buyers to take the thrifts was estimated at $69 billion.

The deals were finished in a frantic burst of effort in the final days of 1988 because an attractive tax break for buyers was expiring at year’s end.

The hastily arranged sales drew intense criticism from Congress. But no formal action to alter the terms was taken until Thursday, when the oversight board held a closed meeting and voted to authorize renegotiations.

The board said the RTC is “authorized to enter into negotiations to reshape the agreements in order to save money for the taxpayers.”

At least $2 billion could be saved, and the figure could go higher, depending on how many of the transactions are altered, an oversight board source said Thursday.

“There is a lot of leeway in the contracts,” the source said. “There is quite a bit of latitude. We decided this was necessary and worthwhile.”

However, the government cannot change the 1988 deals unilaterally and may face resistance from buyers who will argue that their 1988 S&L; purchases were arranged through contracts signed by the U.S. government in good faith. The cases could wind up in courtroom battles if the government and buyers can’t agree on new terms.

Also, if the government seeks to renege on any deals, it could undermine its current efforts to sell S&Ls; and their assets. Prospective buyers may simply view the government as unreliable.

The RTC will handle the restructuring of the deals and will give monthly reports to the oversight board on the negotiations and savings.

The board also gave the RTC power to “take appropriate actions where fraud or other misconduct by private parties is discovered,” Monroe’s statement said, indicating that the regulators can cancel or radically revise a deal if the buyers cheated the government.

Monroe didn’t indicate which of the 1988 transactions will be reviewed.

One of the most important transactions was the sale of American Savings & Loan Assn. of Stockton to billionaire investor Robert M. Bass. He and other investors furnished $350 million in cash as new capital for the thrift.