Congress recently failed to renew funding for the bailout of the savings and loan industry before adjourning for the year.

This means that the current funding delay for the bailout will probably last at least a year -- the last three quarters of 1992 and the first quarter of 1993 -- and possibly longer.

The Resolution Trust Corp., charged with managing and liquidating failed thrifts, lost its ability to spend federal money at the beginning of April. The next Congress is unlikely to consider legislation to renew the RTC's funding before March at the earliest.

Media attention has waned somewhat as the funding delay had dragged on. But in actuality, the funding delay has not diminished the savings and loan crisis, but merely postponed what is left of it. The delay itself is adding to the cost of the bailout because the RTC is forced to keep failed thrifts operating.

There has been considerable controversy regarding how many existing thrifts will ultimately fail and be taken over by the RTC, and what the final cost of the bailout will be.

William Roelle has overseen conservatorship operations and resolution activities for the corporation since it was established by Congress in August 1989.

Before the RTC's creation, Roelle served as the Federal Deposit Insurance Corp.'s savings and loan project manager.

In February, Roelle was appointed the RTC's senior vice president and chief financial officer, when the corporation's management structure was changed under the RTC Refinancing, Restructuring, and Improvement Act of 1991.

Recently, Roelle discussed the remaining costs of the cleanup, which are added to the federal budget deficit, and the ramifications of the funding delay with staff reporter Dean Patterson.

Q: To date, the savings and loan cleanup has cost $84.5 billion. What will be the total cost of the cleanup?

A: Our estimate continues to be around $130 billion, or the midpoint of the $100 billion to $160 billion range previously estimated.

It could be less. If interest rates stay down and the economy picks up a little steam, it could come in less than $130 billion. If real estate markets don't change, it could be more than $130 billion.

[The previous projection] was such a broad range because that estimate was made about nine months after the RTC was created and no one really knew the condition of real estate markets. And you didn't know how many thrifts would fail. At the time, you could get in the ballpark, but you didn't want to get pinned down to an exact number, which we still don't know.

But in general, nothing has changed our $130 billion estimate during the last six or so months. We've been able to go from this wide range down to a tighter estimate because we've got a good bit of the job behind us. We've got a better fix on what the loss rates are in these institutions, what we can get for assets, and what the costs are for doing all this. So we clearly have a better fix on the end of the job.

Now, the cost may come in at $140 billion, or it may come in at $122 billion. We just don't know. A lot of it depends on things we can't forecast. For example, interest rates could increase or additional thrifts could pop up that no one saw on the horizon that we will have to take over.

Q: What has the funding delay by Congress meant to the cleanup?

A: Prior to the funding delay, we were clearly in the eighth inning regarding thrift resolutions. And we were way past the midpoint regarding asset sales.

What's tragic about this is that we've lost momentum in terms of resolution activity. This ultimately slows us down and will impose a cost to the taxpayer.

At the beginning of the funding delay in April, we were looking at about $2.5 million added to the total cost per day. Now that we're into another quarter, that cost is now $6 million per day.

Q: With renewed funding, how long will it take the RTC to finish the cleanup?

A: If we get the money we asked for, we could finish off the resolutions in six to nine months. And it probably would be on the lower end of that range.

That includes about 30 days for the RTC to get up and running again, including, among other things, putting ads in the paper and setting up bidders' meetings. Prior to the delay, our normal workload was around 70 institutions per quarter.

After clearing out the current backlog, we'd be in a position to take the failed thrifts as they were turned over to us by the Office of Thrift Supervision. This means we would be able to resolve future thrifts immediately, rather than placing them in conservatorship first.

Q: What portion of the savings and loan cleanup is left to do?

A: To date, the RTC has taken control of about 721 thrifts. We've resolved 652 of those. That leaves about 69 institutions currently in conservatorship. From that standpoint, we're pretty far down the road.

In addition, there are about 45 institutions considered probable resolutions by the [Office of Thrift Supervision] that could come to us over the next 12 months. So if you add the 69 in conservatorship to these 45, you see there is probably another 114 institutions yet to take care of on top of the 652 we've already resolved.

If we would have gotten the funding in April that we asked for, we would probably have those resolutions behind us for the most part. So you can see that doing without funds has really slowed down this part of the cleanup process.

Q: You can also judge the progress of the cleanup by asset sales?

A: That's right. When you talk about the cleanup, you really ultimately end up talking about the assets.

We believe we're making a tremendous amount of progress on the asset sales. We've taken in over $413 billion in assets from these thrifts and we have sold about three-quarters of that. So we're pretty far down the road on asset sales as well.

But admittedly, the assets we've sold are the easier ones to sell on a relative basis. So right now we're looking at something in the neighborhood of $115 billion to $118 billion of assets left to be sold. Some of those will be easier to sell than others. There is about $90 billion or so in there that are going to be harder to sell.

In this case, we're talking about low quality real estate, raw land, nonperforming loans, and what we call sub-performing loans, which means there may be some intermittent payments, but interest on debt reduction is not per the original contract.

Q: When do you think you'll sell these remaining assets?

A: Taking into account the additional 114 or so resolutions that we'll probably end up doing, we believe that we will probably have the asset activity taken care of something during the latter part of 1995.

So on the whole, we feel like we've turned the corner on the S&L crisis. We feel we are ahead of schedule. With continuous funding, we would now be up to date on resolutions.

That doesn't mean that two months from now OTS would not find another thrift that needs to be resolved. But we would have had all the conservatorship backlog completed that was built up in the early months of RTC.

Q: Would you say the S&L industry has stabilized?

A: Yes. Excluding the RTC-managed thrifts and the ones likely to come to us, the industry's performance has improved dramatically. That's primarily because of falling interest rates.

With improved earnings, thrifts have been able to restructure their balance sheets and get themselves in a better financial position. And they have been able to build up their capital positions.

So now, you have a much stronger and much smaller S&L industry.

Q: How much smaller in the industry now?

A: In 1989 when the RTC was created, there were roughly 3,000 thrifts, give or take a 100 or so. Now I think we're down to about half that number or less. Not all of that reduction was the result of failures, Many thrifts merged with stronger institutions.

You have a much smaller industry now than before. That says a lot about the industry and about the individual survivors. They are strong, by the large, and getting stronger. They've learned a tremendous number of lessons.

Q: Is there any pattern to where future S&L failures will occur?

A: Without getting specific, most of the activity we're looking at is either in the eastern or mid-Atlantic region, or in the western region. There will be one or two more transactions in the Midwest, but that area is pretty much finished. And with the exception of assets we still need to sell, the Southwest is completed.

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