S&L; Agency Seen ‘Overstating’ Its Recovery Total : Cleanup: Official tells lawmakers that RTC losses could be even greater because of declining real estate prices.
The agency handling the savings and loan cleanup may be “significantly overstating” the amount of money that it will recover from the sale of its vast inventory of real estate and loans, the General Accounting Office said Wednesday.
Richard L. Fogel, assistant comptroller general, told the financial institutions subcommittee of the House Banking Committee that asset disposal is “the most daunting challenge” for the Resolution Trust Corp.
The GAO last month said in a separate report that the RTC will lose significant amounts of money from sales of real estate acquired from failed thrifts. That report confirmed a Times computer-assisted investigation last year that found the RTC is likely to lose as much as 40 cents on the dollar in the sale of real estate.
On Wednesday, the GAO, a watchdog agency for Congress, said the potential losses could become even worse because of declining real estate prices. The economic slump and competition from an “abundance of other assets for sale from banks, thrifts and other federal agencies” make it even harder for the RTC to unload properties, Fogel said.
The RTC’s real estate inventory--office buildings, shopping centers, condominiums, single-family homes and raw land--is growing rapidly despite the agency’s aggressive sales campaign. But the GAO does not want the RTC to get its full funding request. Instead, Fogel said Congress should ask the agency to estimate its cash needs through the spring of 1993. After the GAO makes management improvements, he said, Congress can “re-examine the amount of funds needed to finish the thrift cleanup next year.”
The RTC unloaded $5 billion worth of real estate last year. But the inventory grew as more thrifts collapsed, hitting $17 billion at year’s end, compared to $13 billion a year before.
Billions of dollars will be added to this tally because the RTC is burdened with $26.4 billion in delinquent loans, with the vast majority linked to commercial real estate. As many of these loans are foreclosed, the RTC will become the owner of the properties.
Fogel said the RTC is hampered in its efforts to manage the huge real estate and loan portfolio because it is “plagued” by bad record keeping and erratic computer systems.
The RTC “still does not have adequate systems in place to support its critical mission of managing and selling assets,” Fogel said. “Major systems are plagued by fundamental problems, such as unclear or changing requirements, inaccurate and incomplete data, poor response times and software that is not user friendly.”
Rep. Bruce Vento (D-Minn.) expressed concern at the testimony, saying, “They’re not able to keep track of what they own--it’s ridiculous.”
Kate Spears, an RTC spokeswoman, said the agency is studying the GAO testimony in detail. “They said we’ve made some improvements, which we feel we have,” she said. “They also said there was room for improvement, which we said we know.”
The subcommittee will begin work today on the Administration’s request for $55 billion for the RTC to complete the task of closing insolvent S&Ls; and paying off the depositors whose accounts are insured up to $100,000.
The $55 billion is needed to handle the shutdown of a group of thrifts certain to fail and another group of weak institutions, including some large California S&Ls;, where failure is a serious threat, according to the GAO. The current funding authority for the RTC expires April 1.
Congress has already spent $105 billion for the S&L; cleanup, and the RTC says the final price tag will be $160 billion. With interest payments, the thrift debacle may cost taxpayers more than $400 billion over the next 40 years.
