Residential Credit Solutions Wins Bid in FDIC’s Legacy Loans Pilot Sale
September 17th, 2009 Categories: Real Estate News, Real Estate Trends
So they finally had their first auction for the ‘legacy Assets’ otherwise known as problem mortgages that have been taken from failed banks and now are under recivership of the FDIC…
Read more…From DSNews:
By: Carrie Bay
By: Carrie Bay
And the winner is … Residential Credit Solutions, Inc.
The FDIC announced Wednesday that the Fort Worth, Texas-based mortgage servicing company placed the winning bid in a pilot sale of assets that the agency is conducting to test the funding mechanism for
the government’s Legacy Loans Program (LLP). LLP is the component of the Treasury’s Public-Private Investment Program (PPIP) aimed at purging toxic mortgages and other troubled loans from banks’ balance sheets – a program which has been a slow-go to get underway since it was initially announced back in March.
The asset portfolio used in the pilot sale consisted of $1.3 billion in residential mortgages that the FDIC took over from Houston’s Franklin Bank when it was shut down by regulators in November of last year.
As part of the transaction, Residential Credit Solutions (RCS) will take a 50 percent ownership stake in a newly created limited liability company (LLC). RCS will pay the FDIC $64.2 million in cash to transfer the $1.3 billion portfolio to the LLC, who will in turn issue a government-backed amortizing note to the FDIC for $727.8 million.
FDIC officials said that the transaction will likely mean the government receives 70 cents on the dollar for the portfolio, much higher than the 50 cents on the dollar that regulators originally expected to receive for the troubled mortgage loans. That should in turn reduce the $1.6 billion estimated loss the FDIC originally forecast when it took over Franklin Bank.
A total of 12 consortiums threw their bids in the hat for Franklin Bank’s residential home loans. The FDIC said RCS’ bid “would result in the greatest return for the receivership of all competing bids.” The agency said the present value of the bid means the government will receive 70.63 cents on the dollar for the portfolio of mortgage assets.
After the closing, which is expected to occur later this month, The Wall Street Journal reported that RCS will manage the portfolio and service the loans under the administration’s Home Affordable Modification Program guidelines.
The FDIC said it will analyze the results of this test sale to determine whether the LLP can be used to remove troubled assets from the balance sheets of open banks, and in turn spur lending to further support the nation’s credit needs.
LLP was originally intended for assets held by open institutions, but agency officials told the Journal that if the pilot program is successful, it could also become another option for the growing collection of distressed assets the FDIC holds as a receiver for failed banks. According to the paper, the FDIC has around $30 billion in assets in receivership, and that figure is only expected to grow with increasing numbers of bank failures on the horizon.
