RTC Expands Its Financing of Real Estate : Thrifts: To speed up the savings and loan cleanup, the agency will make loans on property as low as $100,000. The previous minimum was $500,000.

The federal agency handling the savings and loan cleanup has adopted an aggressive new policy to speed up commercial real estate sales by providing financing for properties priced as low as $100,000.

The Resolution Trust Corp. will accept down payments of 15% for these properties and provide “flexible” interest rates and repayment schedules, according to Deputy Director Lamar Kelly Jr.

The program is designed in part to counteract the impact of the credit crunch--a result of risk-averse bankers’ reluctance to make loans and lack of demand for capital by recession-worried businesses.

Officials also hope that the expanded financing will help lower the cost of the S&L; bailout, estimated at more than $500 billion over 40 years, by taking properties that are costly to maintain off the federal government’s hands.

RTC financing previously was available only for properties priced at $500,000 or more. But in one of his first directives, new RTC Director Albert Casey ordered an expansion of the program to real estate properties selling for $100,000 or more.

The agency has authority from its policy-making oversight board to spend up to $7 billion to act as a lender for the sale of its properties. But it has committed only $250 million, much of that for a handful of large deals.

“We are not satisfied with the amount of financing we are extending,” Kelly said.

He said it doesn’t take a “rocket scientist” to see that ordinary financing is scarce in many markets. The agency is holding special training sessions for its local officials and contractors to encourage them to make more loans, Kelly said.

The new program means that the RTC will go where many banks and S&Ls; fear to tread--making loans on commercial office space, strip shopping centers and undeveloped land. With money in hand, and personnel newly trained, “we have all the tools we feel are necessary to accelerate this program dramatically,” Kelly said.

The RTC controls 44,100 properties with a book value of $18 billion--the value carried on the records of the failed S&Ls; that originally made loans on the properties. The vast majority of the properties are worth less than $500,000, and RTC officials hope that their offer of financing will spur sales.

RTC officials say they are aware of the program’s risks. The properties were acquired by the government in the first place because buyers failed to make payments. Hundreds of S&Ls; foreclosed on the real estate, and when the S&Ls; became insolvent and were seized by the RTC, the government became the owner.

Buyers of RTC property have no financial liability beyond the property itself in the event of default. They can walk away from the loan without penalties.

This means that the government might have to take control of the property once again. However, Kelly said the risk is justified because the carrying costs for a property--taxes, insurance and maintenance--range from 15% to 30% of the property’s value.

“We have 100% of the risk now--it’s all on our books,” he said.

The agency is much better off if it gets 15% down from a buyer with a properly structured loan, Kelly said. Even if there is an eventual default, it will have received some money.

The RTC will arrange payment schedules and terms to entice buyers. For example, the first three years of the loan might require only interest payments.

The RTC will act as the lender only after determining that private financing is unavailable. Potential purchasers must try to get credit from commercial sources before turning to the agency.

“We want to make sure if (the banks) would extend (credit), then we won’t extend it,” Kelly said.

In some cases, the RTC will accept a down payment as low as 5% of the purchase price, if the buyer is willing to put money in escrow to pay for capital improvements on a property.

Most of the anticipated sales under the program will be commercial properties, Kelly said. The RTC has a separate program to provide financing for low-cost housing in its inventory.