RTC Pressing Investor Sale Of Bad Assets
WASHINGTON - Federal regulators decided Tuesday to slash prices on $25 billion in real estate assets held by investors who purchased savings and loans from the now defunct Federal Home Loan Bank Board in 1988.
The action by the Resolution Trust Corp. is designed to speed the investors' sales of the assets. Investors have been reluctant to let go because the government, as an inducement for them to buy failed thrifts, guaranteed yields for up to 10 years.
Schedule of Markdowns
The RTC board voted to make the investors mark down the price of an asset to 60% of appraised value after it is on the market for six months. After 18 months, the price falls to 50% of appraised value, according to the new RTC rule.
Meanwhile, at its board meeting Tuesday, the Federal Deposit Insurance Corp. decided not to repudiate $650 million in collateralized put obligations held by troubled banks insured by the FDIC. The agency has the power to repudiate such agreements when a bank fails.
A Practice in Eighties
Some savings banks sold municipal bonds in the early 1980s with a pledge to buy the bonds back. Bond buyers and rating agencies have been worried that the pledges were in jeopardy at troubled institutions.
The FDIC decided against extending the same assurance to collateralized letters of credit, which are not used much by banks.
The FDIC said its decision to honor these collateralized put obligations is not a signal that the agency will shy away from using its power to cancel other contracts of a failed institution.