WASHINGTON - A Senate panel is investigating whether the Federal Deposit Insurance Corp. is wasting millions of dollars as it liquidates assets from failed banks.
The Senate Governmental Affairs Committee's oversight subcommittee will hold a hearing Tuesday to gather evidence. The panel plans to compel the testimony of two FDIC employees by serving them subpoenas this week.
Testimony also is expected from Mark Johnston, mayor of Saco. Maine - a small town hit hard by foreclosures.
A borrower, James Laird of Glenrock, Wyo., also will be called to narrate his experience with the FDIC.
Bovenzi for the Defense
Defending the FDIC will be the agency's lead liquidator, John Bovenzi.
The hearing is important because it could lead to legislation that revamps the way FDIC sells failed-bank assets. Liquidation costs account for 57% of the agency's expenses.
A Jekyll and Hyde Agency
Because bankers foot the FDIC's bills through deposit insurance premiums, any money the agency saves through more efficient collections should reduce the amount needed from the industry.
The subcommittee's plan to hold a hearing was prompted in part by a 10-part series written last month by two Scripps-Howard News Service reporters. The series, or parts of it, appeared in 14 newspapers in late October.
The series claimed that the FDIC turns from "protector to predator" when it shifts roles from insurer to liquidator. The stories quote people from various towns who claim that the FDIC is ruthless when dealing with borrowers and inept when dealing with investors.
Borrowers were quoted as claiming the FDIC foreclosed on their homes or businesses despite their being current on loan payments.
Investors brag in the stories about buying loans and real estate from the agency for pennies on the dollar and then reselling the assets for three times what they paid.
A Distorted Picture?
In a letter to the editor of a newspaper that ran the series. Mr. Bovenzi criticized the reports as "little more than a collection of factual errors, distortions. and one-sided reporting."
While he admitted that the FDIC is not perfect, Mr. Bovenzi said problems with borrowers are the exception, not the rule.
In New England, for example. Mr. Bovenzi said the FDIC has handled 130,000 loans in the last five years. Of that total, the agency has foreclosed on just more than 1% of them, he said.
Sen. William Cohen, R-Maine, a member of the subcommittee, is the force behind the hearing. In one of the Scripps-Howard stories, he described the FDIC as "enforcers, knuckle-breakers, a combination of Robocop and fiscal Gestapo."
Looking for Policy Flaws
The senator, sources said, wants to find out whether the FDIC's own policies are preventing it from getting full value for assets.
He also is said to believe that the FDIC needs to push decision-making further down the chain of command so that field employees have the power to negotiate settlements with borrowers.
Though the FDIC is defending itself strenuously, Mr. Bovenzi did note in his letter to the editor that the agency recently created an internal review office to investigate charges of waste, fraud, and abuse.
He also said the FDIC is "streamlining" operations at offices around the country "to give staff on the front lines new authority to resolve problems without having to get approval from Washington."