New Method of S&L; Sales May Save Taxpayer Money : Thrifts: Well-managed but troubled institutions are sold before they become insolvent to avoid costly bailouts later.

Federal regulators said Monday that they have selected 42 savings and loan associations with $22 billion in assets to participate in its “accelerated resolution” program designed to sell troubled S&Ls; before they fail, thus saving taxpayers money.

These thrifts are “the best of the worst,” losing money but still salvageable, said Timothy Ryan, director of the Office of Thrift Supervision. The S&Ls; targeted for the special program are in “much better shape, the records are much better and the management is much better” than the institutions previously seized and sold by regulators, he said.

The targeted thrifts, which were not identified, have been losing money because of the slump in the economy and the accompanying plunge in real estate values. However, they are considered generally to be well-run institutions, with a strong base of local deposits.

“The truly sick institutions . . . were closed first,” said Bill Roelle, director of resolutions and operations for the Resolution Trust Corp., the agency handling the disposition of failed thrifts. “The ones we’re starting to see are basically (in trouble) as the result of poor economic conditions in the real estate sector. They are becoming insolvent over the course of several months.”

The regulators hope to reduce bailout costs to taxpayers by arranging sales of the S&Ls; and their assets before the onset of insolvency, which would dump the institution into the government’s huge inventory of mortgages and real estate.

The accelerated resolution program would save money by requiring the government to supply only limited amounts of funds to cover thrift losses. The government takes some of the bad assets--delinquent loans and hard-to-sell real estate--and provides funds to the S&L; to cover losses. But the bulk of the assets are taken by the new owners of the thrifts.

Twenty-seven S&Ls;, with assets of $11.3 billion, have already been sold through the special marketing program. The government’s cost to cover losses of those thrifts was just $1.1 billion, or 10%.

By contrast, the government suffered average losses of 37% on the crippled S&Ls; it began managing and dismantling in 1989. Those were the worst S&Ls;, with years of losses and portfolios packed with bad loans. Losses have since declined to the 20% range with the seizure of hundreds of additional thrifts.

The government has seized “all the grapefruits--they were hemorrhaging,” Ryan said. “Now we’re picking out the beautiful apples,” he said referring to the S&Ls; he hopes to sell through the accelerated resolution program.

Federal regulators will be allowed to spend $25 billion by next April 1 to close crippled thrifts and pay off their depositors, and to cover the expected narrow losses under the accelerated resolution program. Roelle said the RTC has a backlog of 91 seized thrifts requiring shutdown and disposal of assets, in addition to the 42 thrifts still in private hands but earmarked for the accelerated marketing program.

He said regulators hope to dispose of 75 to 90 S&Ls; by next April. However the officials do not know how the $25 billion will be divided between the S&Ls; to be shut down and those to be sold before they become insolvent.

“We are not in a panic to spend the $25 billion,” Roelle said. “We will do what we can to spend it well.”