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From: americast-post@AmeriCast.Com
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Subject: S&Ls: The Gigantic Cleanup=
Date: Fri, 13 Nov 92 04:39:11 EST
Message-ID: <32.1992Nov13.043912@AmeriCast.com>

S&Ls: The Gigantic Cleanup=

 SO FAR, in their gigantic cleanup of failed S&Ls, federal regu-
lators have sold off $287 billion worth of real estate and loans
backed by real estate. These are the assets of savings and loan
institutions that went bankrupt and were seized by the govern-
ment. (Just for purposes of comparison, $287 billion is very
close to the country's defense budget for this year.) Before the
cleanup is completed, the regulators will sell off another $150
billion worth. An operation on that scale is bound to generate
disputes over the way it's being carried out.

 These disputes are inevitable because Congress has given con-
flicting directions to the agency that's doing the work, the
Resolution Trust Corp. Congress rightly wants the RTC to get rid
of these properties promptly. It does not want the federal
government to settle into a permanent role as owner and trader in
the private real estate market. But at the same time Congress,
also rightly, wants the RTC to get the highest possible prices
for these assets and do its best to hold down the large losses
that are falling onto the taxpayer.

 One method designed both to speed up sales and protect the tax-
payer is to package large numbers of mortgages into pools and
sell shares as securities. Among other advantages these securi-
ties can be sold to big investors, like pension funds, that won't
buy mortgages separately. Packaging mortgages into securities is
part of the normal business of mortgage brokers, and the packager
has to offer certain guarantees to the investors. The risks are a
little higher in the RTC's pools, because these are assets taken
from lenders in deep and terminal trouble. The loan documentation
may be less than perfect and some of the borrowers less than
ideal. But these risks are calculable, and there's no evidence
that this process of wholesaling mortgages is going to expose the
federal government to any greater liability than any other real-
istic method of disposing of them. Some liabilities are inevit-
able in the process, and the RTC has set up funds to cover them.

 There are only two ways to avoid all sales liability. One is to
sell these properties and loans on a buyer-beware basis.  That
drives the prices down, and the burden on the federal budget goes
up. Or the government could simply hold the properties, waiting
for just the right moment to put each house and each mortgage on
the market. It would take a very long time to sell off $450 bil-
lion worth of assets that way. The RTC is right to push ahead as
fast as it can.<02:25 11-13C9999-----

Copyright 1992, The Washington Post.  This story is from the
Washington Post's Capitol Edition On-Line and is not to be ar-
chived or redistributed.

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