Full text of Strategic Plan for the Resolution Trust Corporation
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Resolution Trust Corporation
1825 CONNECTICUT
AVENUE,
N-W.
WASHINGTON.
D . C. 2 0 2 3 2
STRATEGIC PLAN
for the
RESOLUTION TRUST CORPORATION
DECEMBER 31, 1989
D
TABLE OF CONTENTS
PART ONE: INTRODUCTION AND COMMENTS ON DRAFT STRATEGIC PLAN
Paoe
I.
II.
Introduction ......................................1
A.
Background and Statutory Requirements........ 1
B.
RTC and Oversight Board Duties............... 2
C.
Purpose and Contents of the Strategic Plan....3
D.
Strategic Plan Development................... 4
E.
Expenditure Principles....................... 4
Public Comments and Changes to the Draft Plan..... 6
A.
Case Resolution.............................. 7
B.
Asset Management and Disposition............ 14
C.
Affordable Housing Provisions............... 18
D.
Conflicts of Interest and Ethical Standards..24
E.
External Relations.......................... 25
F.
G.
Administration...............................25
Other........................................26
PART TWO:
STRATEGIC PLAN
III. Mission Statement ........................ .......28
IV.
General Policy Discussion........................ 29
A.
Case Resolution............................. 31
B.
Asset Disposition........................... 41
C.
Affordable Housing Provisions............... 50
D.
Conflicts of Interest and Ethical Standards..57
E.
External Relations.......................... 59
F.
Administration.............................. 61
V.
Goals, Objectives, and Implementation Procedures..66
A.
Case Resolution ............................. 66
B.
Asset Disposition...........................74
C.
Affordable Housing Provisions............... 80
D.
Conflicts of Interest and Ethical Standards..86
E.
External Relations...........................88
F.
Administration............................... 90
Appendix............................................... 94
STRATEGIC PLAN FOR THE RESOLUTION TRUST CORPORATION
I.
INTRODUCTION
A.
BACKGROUND AND STATUTORY REQUIREMENTS
The Resolution Trust Corporation (RTC) and the Oversight Board of
the Resolution Trust Corporation (Oversight Board) were
established as instrumentalities of the United States on August
9, 1989, by the enactment of Section 21A of the Federal Home Loan
Bank Act (12 U.S.C. 1441a) as added thereto by Section 501(a) of
the Financial Institutions Reform, Recovery, and Enforcement Act
of 1989 (FIRREA)
183, 363-393).
(Pub. L. No. 101-73, Section 501(a), 103 Stat.
Throughout this document, all references to
Section 21A are to Section 21A of the Federal Home Loan Bank Act
as amended by Section 501(a) of FIRREA.
FIRREA requires the Oversight Board, in consultation with the
RTC, to develop a strategic plan for the RTC's functions and
activities, and to submit the plan to Congress no later than
December 31, 1989. FIRREA establishes the minimum contents
required for the strategic plan, and further requires the
Oversight Board to appear with the RTC, by January 31, 1990,
before the Committee on Banking, Finance and Urban Affairs of the
House of Representatives and the Committee on Banking, Housing,
and Urban Affairs of the Senate to describe the strategic plan.
At its public meeting on September 21, 1989, the Oversight Board
determined that it would be beneficial at an early stage in the
development of the strategic plan to make a draft available for
public comment.
Accordingly, a preliminary, draft strategic plan
was issued for 30 days comment on November 3.
The Oversight
Board emphasized that it was an early draft that could be revised
Page 2
in response to comments received and in the course of the Board's
own further review and deliberation.
In preparing the final
strategic plan, the staff of the Oversight Board reviewed 85
comment letters, consulted extensively with the staff of the
Oversight Board members' agencies and staff of the RTC, and
participated in a Congressional hearing on the strategic plan.
B.
RESOLUTION.THUS? ^QRPpRATIQN M 9 ...QYEBSIGET.BQAP0 DUTIES
The mission of the RTC is to carry out a program, under the
general oversight of the Oversight Board, to manage and resolve
institutions that come under its jurisdiction and to dispose of
any residual assets in a manner that:
o
maximizes return and minimizes loss;
o
minimizes the impact on local real estate and financial
markets; and
o
maximizes the preservation of the availability and
affordability of residential property for low- and
moderate-income individuals.
The duties of the Oversight Board are to oversee and be
accountable for the RTC.
The Oversight Board is required, in
consultation with the RTC, to develop and establish overall
strategies, policies, and goals for the RTC's activities,
including the RTC's overall financial goals, plans and budgets.
The Oversight Board is also required to review the overall
performance of the RTC on a periodic basis, including its work,
management activities, and internal controls and the performance
of the RTC relative to approved budget plans pursuant to the
terms of FIRREA.
Page 3
C.
PURPOSE AND CONTENTS OF THE STRATEGIC PLAN
The purpose of the strategic plan is to set forth the RTC's
goals, objectives, and implementing procedures in support of its
mission.
FIRREA establishes the minimum contents that the plan
and the implementing guidelines and procedures must contain.
The strategic plan includes both the general policy discussion
and the goals, objectives, and implementing procedures that are
contained in this document.
The strategic plan's goals establish
broad, general direction for the RTC in six areas:
case
resolution, asset disposition, affordable housing, conflicts of
interest and ethical standards, external relations, and
administration.
The strategic plan's objectives provide more specific statements
with respect to the goals set forth.
Subject to the review of
the Oversight Board, the RTC is responsible for amending the
FDIC's policies and procedures and, where necessary, adopting its
own set of rules, regulations, standards, policies, procedures,
guidelines, and statements necessary to implement the strategic
plan established by the Oversight Board.
Consistent with FIRREA, the strategic plan generally relies on
the RTC to develop the specific guidelines and procedures for
implementing the general guidance provided in the strategic plan.
Until such specific procedures are developed by the RTC, the
Oversight Board has directed the RTC to operate, consistent with
Oversight Board policies, in accordance with existing FDIC
procedures.
The challenges facing the RTC, and thus the Oversight Board, both
in terms of magnitude and complexity, are unparalleled in recent
history.
It is anticipated that a significant portion of the
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assets of thrift institutions in the Southwest will come under
the jurisdiction of the RTC, and thus, will have to be disposed
of either through case resolutions or outright asset sales.
In
the interim, the RTC will become a major holder of real estate in
this market.
There is no historical model for a task of this
magnitude that the Oversight Board can turn to as it develops
policies for the RTC that are designed to ensure that the RTC's
actions are consistent with FIRREA's statutory objectives.
As the Oversight Board and the RTC develop more experience,
issues will arise that will require new policies and directions.
As a result, it is expected that the strategic plan will be
refined and strengthened on a periodic basis, based on the
experience gained by the Oversight Board and RTC.
Additionally,
as the National and Regional Advisory Boards begin operating,
they will provide a new source of input to the policies and
procedures developed by the Oversight Board and RTC for the sale
and
disposition of real property assets.
D.
$TRAT5$I? ELAN.PEYBM P M EPT
The strategic plan was developed by Oversight Board staff in
consultation with staff of the Treasury Department, the
Department of Housing and Urban Development, the Federal Reserve
Board, and the RTC.
The strategic plan incorporates individual policies that have
been adopted by the Oversight Board and, to the extent
appropriate, comments received during the public comment period.
E.
EXPENDITURE PRINCIPLES
To resolve insolvent thrift institutions, Congress authorized $50
billion.
When considering whether the expenditure of funds for
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other programs authorized by the statute are appropriate, the
Oversight Board should be provided with a cost estimate of the
program and any other information the Board may require.
If the
program is approved, the RTC should monitor the implementation of
the program and should provide regular reports (including its
costs) to the Oversight Board.
Page 6
II.
PUBLIC COMMENTS AND CHANGES TO THE DRAFT PLAN
At its September 21, 1989 meeting, the Oversight Board decided to
issue the strategic plan in draft form for public comment before
submitting it to Congress.
The Oversight Board sought comments
on all aspects of the strategic plan, and particularly, on the
questions that it posed.
It was hoped that publication of an
early and preliminary draft of the strategic plan would promote
participation in the formulation of the RTC's goals, objectives
and implementation procedures.
On November 3, 1989, the Oversight Board issued the proposed
strategic plan for comment in the Federal Register.
Eighty-five
individuals and organizations responded to the request including:
seven federal agencies, seven municipalities, and eight state and
local housing agencies? 19 public interest groups, including 11
national, state, and local housing organizations; 16 individuals,
including lawyers and realtors? 13 professional and trade
associations? eight asset management firms? six investment
bankers and financial management firms? and one thrift.
Respondents generally supported the various provisions in the
strategic plan and the associated implementing procedures,
although concern was expressed by several respondents that the
plan lacked specificity.
suggested.
A variety of additions to the plan were
These comments as well as additional decisions made
by the Oversight Board were considered in preparing the final
strategic plan.
The following discussion of comments is organized around the six
topics identified in the plan.
In addition to summarizing the
comments, the discussion identifies how the final plan differs
from the November 3 draft.
Finally, due to changes made to the
strategic plan as a result of public comments, the initial
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completion dates for most of the implementation procedures that
were to have been provided by the RTC to the Oversight Board by
the end of 1989 have been shifted to January 15, 1990.
A.
CASE RESOLUTION
The case resolution section of the final strategic plan is
organized around six general objectives:
(1)
establishing
conservative operating policies for thrifts in conservatorship;
(2) establishing a prioritization schedule for case resolutions;
(3) establishing procedures for selecting a method of resolution;
(4) establishing bidding procedures; (5) establishing record
keeping and reporting procedures; and (6) using the private
sector for services related to case resolutions.
Conservatorship Policy
The draft strategic plan did not include a specific objective
relating to the operating policies of institutions in
conservatorship.
Commenters, however, suggested a number of
policies that the RTC should follow while operating the
conservatorships. For example, two commenters endorsed
downsizing institutions in conservatorship. Another
recommendation was that the RTC should sell or securitize
mortgage loans while an institution is in conservatorship.
The Oversight Board agrees that it is important that the RTC
manage institutions in conservatorship in a manner that
ultimately minimizes the costs and risks to the RTC.
As such,
the final strategic plan includes a specific objective in the
case resolution section that directs the RTC to adopt
conservative operating policies for institutions in
conservatorship.
The implementing procedures to achieve this
objective direct the RTC to implement procedures for downsizing
institutions with minimal franchise value.
Cash flows from
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principal and interest payments are to be used to repay high-cost
insured deposits and secured borrowings.
Institutions with
significant franchise value should, in general, be allowed to
maintain, but not increase, their asset size.
Furthermore, any
new lending should only be in low-risk assets comparable to the
lending authority outlined in FIRREA for thrift institutions that
fail to comply with their minimum capital requirements.
The plan
also instructs the RTC to establish a national sales program to
coordinate the disposition of financial assets held in
conservatorship.
Finally, the implementing procedures direct
the RTC to report to the Oversight Board by March 31, 1990 on the
feasibility of hedging the RTC's overall interest rate exposure.
Prioritization Schedule for Case Resolution
The draft strategic plan identified four factors that the RTC
should consider in establishing its prioritization schedule for
case resolutions:
(1) the rate of deterioration,
(2) the risk
exposure of the RTC, (3) recovery of franchise value, and (4)
efficient use of RTC resources and staff. The Oversight Board
specifically asked how each of these factors should be measured
and weighted.
The GAO responded that the first three factors were interrelated
and could not be individually weighted, while the fourth
(efficient use of staff) was unimportant and did not belong on
the list.
Three other respondents, including a trade group,
argued that the RTC should not necessarily concentrate on the
worst cases first.
Instead, it was argued, the RTC should focus
on the potential effect of delay on the value of the assets of
the institution.
It was suggested that the RTC's top priority
should be to deal with those institutions that had failed most
recently in order to preserve their franchise value.
Consistent with the GAO comment, the Oversight Board agrees that
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the deterioration of an institution includes both the ongoing
operating losses as well as any loss in franchise value that
occurs before resolution takes place.
Furthermore, the Oversight
Board believes that this broader definition of deterioration is
the most important factor for the RTC to consider and, as such,
the final strategic plan directs the RTC to first consider the
deterioration of institutions in establishing the priority
schedule.
This approach is also consistent with the comment that
the RTC should first resolve institutions that have recently
failed, if, as the commenter suggests, these institutions have
the greatest franchise value.
The Oversight Board does not agree with the GAO comment that the
ongoing risk exposure at institutions is embodied in the concept
of deterioration, nor that the efficient use of RTC resources is
unimportant for establishing priorities.
Institutions in
conservatorship have different degrees of ongoing risk.
For
example, one institution may have more interest rate risk than
another.
If the deterioration at two institutions is the same,
the RTC should first resolve the institution with the greater
risk.
Similarly, the RTC should consider its resources (e.g., personnel
in various geographic regions) in establishing priorities.
While
these resource constraints can be changed over time, the RTC
should not delay actions until these changes are made.
Methods of Case Resolution
Another objective identified in the draft plan was for the RTC to
establish procedures for selecting a method of resolution that is
consistent with (1) FIRREA's loss minimization criteria; (2)
Page 10
requirements in the Federal Deposit Insurance Act regarding the
RTC providing assistance for case resolutions; and (3) the need
to minimize the ongoing risk of the RTC and disruptions in local
real estate and financial markets.
The Oversight Board also
asked several related questions on how institutions should be
resolved, including whether the RTC should sell thrifts as whole
institutions or component parts, and whether the costs of
administering a piecemeal liquidation outweighed the potential
benefits of attracting a wider group of interested bidders.
While nine respondents commented on this issue, none identified
additional factors that the RTC should consider in selecting a
method of resolution.
A thrift and a public interest group favored whole thrift
transactions, while four groups including the American Bankers
Association, the U.S. League of Savings Institutions, and the
Consumer Federation of America favored the approach suggested in
the plan of directing the RTC to accept bids for individual
branches, so that more bidders could participate, and ownership
concentration would be reduced.
GAO emphasized, however, that
the RTC should structure sales of institutions in such a way that
bids received are comparable.. It was further suggested that the
RTC, in its report to Congress, should include statistical
information regarding the various methods of case resolution and
their relative successes.
The Oversight Board believes that the losses to the RTC will
ultimately be lower if prospective acquirers are allowed to bid
on a variety of resolution structures.
The RTC can then select
the best offer from among the alternatives.
While the Board
Page 11
recognizes that this approach will require the RTC to evaluate
and compare different types of bids, the Board agrees with
commenters who suggested that the cost savings likely to result
from attracting a broader range of prospective bidders outweigh
the added administrative burden of comparing different types of
bids.
The final strategic plan reflects this decision and
directs the RTC to allow potential bidders to bid on a variety of
resolution structures (e.g., whole-thrift, clean-thrift, and
individual branches).
The final strategic plan further clarifies the criteria for
selecting among alternative resolution structures.
Specifically,
when the RTC provides assistance, the cost of the assistance must
reflect the loss of any tax revenue to the federal government.
The Oversight Board also asked for comments on its policy of
limiting the maturity of asset puts and other contingent
liabilities for the RTC to no greater than six months.
One thrift noted that past FSLIC assistance agreements lengthened
the government's involvement with resolved thrifts and
recommended that the RTC consider one-time grants that encourage
and require the investor to assume greater risks. An investment
banking firm countered that "regulatory forbearance should be an
on-going aspect of RTC case-resolution techniques, since it can
reduce the cost of a given resolution... Although forbearance can
shift risk to the insurance fund and might result in various
indirect subsidies, these subsidies can be measured and disclosed
and, as a result, managed."
GAO observed that the Oversight Board should be as specific as
possible regarding the use of various forms of financial
assistance.
It stated that there are undesirable incentives
Page 12
associated with all assistance arrangements and, therefore, their
use must be justified.
Consistent with the GAO comment, the final plan clarifies the
appropriateness of various forms of financial assistance.
Furthermore, after reviewing the comments received, the Board has
decided to continue its policy of limiting the use of asset
guarantees to six months.
Drawing from previous Oversight Board
policy statements, the final plan directs the RTC to minimize its
use of any forms of financial guarantees and open-ended
assistance agreements.
However, the RTC may use asset
guarantees, capital loss coverage or asset puts, but the maturity
of these agreements, in general, should be no longer than six
months and should only cover the period required by the acquirer
to complete due diligence.
The final plan also incorporates the Board's policy statement on
ownership interests, directing the RTC to generally avoid taking
active equity interests that allow the RTC to exercise control or
actively participate in the management of resolved institutions.
The RTC is not, however, precluded from taking passive equity
interests to share in substantial gains in resolved institutions.
9j.33in.q
.Institutions
An objective in the draft plan for the RTC was to develop and
implement bidding procedures that encouraged the active
participation by all qualified bidders.
The Oversight Board
asked for comments on methods for ensuring that all interested
bidders are fully informed regarding the bidding procedures for
institutions that are being marketed.
Thirteen comments were
received on this issue.
Respondents suggested that the most important step that the RTC
could take was to keep the market informed by notifying the
Page 13
broadest spectrum of financial institutions of the availability
of institutions for sale.
Bidding procedures should be
formalized and publicly disclosed.
Guidelines, procedures, and
marketing schedules should be made available as quickly as
possible, and even the methodology for determining liquidation
costs should be made public.
One investment banking firm emphasized the importance of
including small firms in the bidding process.
To have small
firms participate, the process must be fair and open, and there
must be at least six weeks between solicitation and acceptance of
bids.
However, one thrift suggested that if a conservatorship
has an acceptable acquirer, it should be taken out of the bidding
process because the bidding process can be lengthy and lead to
deterioration of the thrift's franchise value.
Finally, two groups urged the streamlining of federal regulatory
policies regarding approval of acquisitions, mergers, and other
ownership changes and conversion from thrift to bank status.
The Oversight Board agrees that the RTC needs to broadly
disseminate information in order to attract the widest range of
prospective bidders. Furthermore, the public needs to be
informed on all aspects of the resolution process including
bidding procedures, bidder qualifications, and the terms of
previous transactions.
In the draft plan, the RTC was directed to disseminate this
information.
The RTC has already published a buyer's guide
identifying the procedures for acquiring a thrift institution and
has advertised the sale of institutions in national newspapers.
While these are important first steps, the Board agrees with
commenters that additional information needs to be disseminated,
including the required qualifications for acquiring institutions.
Page 14
The Board encourages the relevant state and federal regulatory
agencies to make such information readily available to potential
acquirers.
Also, the final plan clarifies the bidding procedures for
minority institutions. Specifically, when resolving a minority
institution, the RTC must first solicit bids from other minority
depository institutions.
Because the Oversight Board wishes to
preserve the minority character of minority thrift institutions,
and because of the costs associated with a lengthy bidding
process, it is the Board's policy that if the RTC determines that
a bid received from a minority institution or minority group is
less costly than liquidation, the RTC is not required to solicit
additional bids.
Furthermore, to promote the continuation of minority
institutions, the final plan authorizes the RTC either to
postpone by up to nine months the closing of a transaction while
the acceptable acquirer finds permanent capital or to provide up
to nine months of bridge financing for two-thirds of the required
capital for the acquisition of a minority institution.
The
initial equity investment of the acquirer would be at risk in the
event the acquirer were unsuccessful in raising the required
capital within the nine-month period. The financing is to be at
market rates and secured by the capital placed in the institution
by the acquirer.
B.
ASSET MANAGEMENT AND DISPOSITION
Commenters responded to all four of the objectives laid out in
this section of the draft strategic plan.
The first of these
objectives is for the RTC to maximize the net present value
recovery of assets sold.
aspects of this objective.
Respondents expressed views on several
How the RTC estimates market values
Page 15
of properties was noted as a key element in RTC operations.
Comments on the use of auctions and bulk sales were mixed.
One
comment suggested that auctions distorted the value of property
and should not be used.
Two others suggested that competitive
public auctions provided an efficient way to dispose of property
and should be encouraged.
There was a suggestion by the
Certified Auctioneers Institute that the earlier draft plan was
biased against auction marketing.
With respect to bulk sales, the comment was made that these sales
need to be carefully designed if RTC is to maximize its return on
these transactions while also minimizing the impact on local
markets and pursuing the affordable housing objective.
Bulk
sales of financial assets as well as of real estate were
recommended by several respondents.
Seller financing provided by the RTC was mentioned by several
respondents as a necessary component of the asset marketing
process.
One respondent felt that guarantees of loans sold by
the RTC should extend beyond six months.
Municipal government agencies expressed concern that the RTC's
activities might result in properties being removed from local
property tax roles.
In response to comments received on these topics, a number of
changes have been made in the plan. The wording of passages
regarding auction sales methods has been changed, use of
appraisals by the RTC has been elaborated upon, and the
discussion of the property inventory has additional wording
regarding RTC consultation with environmental agencies and
organizations regarding significant properties.
The Oversight
Board also decided to specify the circumstances under which the
Page 16
RTC may provide seller financing in disposing of its assets, and
these conditions are incorporated in the plan.
A second objective set out in the asset disposition section of
the draft plan related to the RTC's use of private sector
contractors.
The Oversight Board staff also specifically asked
for comments on the extent to which the RTC should use the
private sector as overall asset managers, and to what extent it
should contract with providers of component services.
These
component services include property management, loan servicing
and workout, accounting and legal services, capital improvements
to completed or partially built structures, marketing of loans
and properties, and negotiating the terms of sale of these
assets.
Sixteen respondents commented on this question, and virtually all
favored the use of the private sector, rather than RTC staff, for
the asset management function.
The view was that the RTC should
not attempt to duplicate the services available in the private
sector.
Several respondents argued that asset managers needed authority
over the entire recovery process. Another voiced the view that
the RTC's role should be that of "a manager of managers."
Contracting methods and compensation of asset managers and other
contractors was another focus of comments.
One opinion was that
contracts should be tailored to the specifics of the asset(s) to
be managed.
Incentive systems were generally favored, but the
need for specificity and careful design was mentioned.
questioned the workability of incentive structures.
Some
One
potential problem mentioned was that managers might inadvertently
be given an incentive to hold assets rather than dispose of them.
Page 17
A few respondents noted the potential for conflicts of interest
among asset managers.
One trade association noted the need for a
minority outreach program for asset managers.
Many of the comments received on use of the private sector were
consistent with the policies set out in the draft plan.
As a
result, only a few changes have been made to this part of the
plan.
These changes deal with the design of incentive contracts
in asset management contracts and methods of monitoring the RTC's
use of private sector contractors.
The third objective in the asset disposition section of the draft
strategic plan is to minimize the impact of RTC transactions on
local real estate and financial markets.
In response to this
section of the plan, some respondents questioned whether the
minimum disposition price for RTC properties in distressed areas
—
set initially in FIRREA at 95 percent of market value —
an achievable target.
was
On the other hand, concerns about dumping
of properties at below-market prices were voiced by groups such
as state housing agencies, as was the need for cautious and wellplanned disposition strategies in these areas.
The plan
incorporates some wording changes in discussing the 95 percent
rule and re-orders some of the paragraphs from the previous
draft.
A final focus of comments on asset disposition was the importance
of full and accurate information from the RTC, which relates to
the fourth objective in the draft plan: that the RTC fully
document asset management and disposition activities to assure
compliance with FIRREA.
Commenters made several points:
(1) In
order to make appropriate bids for contracts and properties from
the RTC, contractors and investors need as much pertinent
information as the RTC can provide.
(2) In addition,
notification of rejected bidders should occur rapidly, and
Page 18
bidding results should be open to full public review.
(3) More
generally, the financial and real estate markets benefit from
information because risk premiums built into offers can be
reduced.
The Oversight Board felt that these comments were
supportive of the policy set out in the draft plan, and no
changes in these sections have been made in the plan.
c.
AEE9BPABLE ROUSING
The strategic plan directs the RTC to dispose of eligible singleand multi-family residential properties in a way that maximizes
the preservation of the availability and affordability of
residential real property for low- and moderate-income
individuals.
Eligible properties will first be offered to
qualified purchasers for 90 days through clearinghouses
administered by state housing finance agencies, the Office of
Community Investment or other division of the Federal Housing
Finance Board (FHFB), and certain national nonprofit
organizations.
The first objective in the affordable housing provisions section
has been revised to better reflect the intent of FIRREA.
objective now also includes providing rental housing
That
opportunities and explicitly notes the requirement to address the
needs of very low-income families.
The discussion section on
affordable housing has been revised to include definitions of
qualified purchasers for eligible single- and multi-family
properties and the lower-income occupancy requirements that
multi-family property purchasers must meet.
The strategic plan directs the RTC to prepare detailed guidelines
by March 30, 1990, for carrying out FIRREA's objective of
preserving the availability and affordability of housing for lowand moderate-income individuals.
Page 19
Interim Marketing Period
To avoid keeping needed housing off the market and to avoid any
further deterioration of eligible properties, the draft strategic
plan permitted the RTC to begin selling eligible properties under
interim rules before the publication of final rules.
Some
respondents, including several members of the RTC Task Force of
the House Banking Committee, supported beginning eligible
property sales under interim rules.
However, most respondents
opposed such sales before publication of final rules, except for
pilot projects to test program concepts.
A new implementation procedure for this objective has been added
to the plan. It states that the RTC must establish interim
guidelines for review by the Oversight Board before selling any
eligible properties.
These interim guidelines may authorize
pilot projects that test eligible property disposition program
concepts, but do not include subsidies.
Clearinghouses
The Oversight Board requested comment on whether clearinghouses
should provide functions other than the dissemination of
information. A total of 22 comments were received with most
respondents suggesting that clearinghouses should also perform
marketing and outreach and receive funding based on the range of
functions performed.
While respondents generally agreed that state housing finance
agencies and national nonprofit organizations should serve as
clearinghouses, several recommended additional vehicles and
groups for information dissemination, including national computer
networks, local public access cable television stations, private
sector subcontractors, private brokers, and multiple listing
services.
However, concern was raised that private brokers might
Page 20
choose to maximize sales prices rather than to facilitate sales
to lower-income households.
Concern was also expressed by some respondents that
clearinghouses who do more than provide information might
encounter conflicts of interest.
The National Council of State
Housing Agencies (NCSHA) suggested that the plan explicitly allow
clearinghouses to purchase properties.
In response, the strategic plan now contains a revised
implementation procedure that will identify which state housing
finance agencies, along with the FHFB, will serve as
clearinghouses, and will establish guidelines for determining
which national non-profit organizations have the capacity to act
as clearinghouses.
On the question of which bidders were qualified to purchase
eligible properties, several respondents sought assurance that
self-help groups, tenant associations, public housing
authorities, municipal governments, and Community Mental Health
Centers were qualified purchasers.
Other comments recommended
that state and local public agencies, which have experience under
other programs, be used by the RTC to qualify purchasers. The
plan now directs the RTC to develop and implement procedures for
qualifying purchasers by March 31, 1990 and to investigate the
feasibility of contracting with other government agencies, state
housing agencies, and nonprofit organizations for the service of
determining which households are qualified purchasers.
Respondents dealt at length with the kinds of information that
the RTC should provide to clearinghouses. Essentially, they
wanted information to be conveyed on a regular schedule in a
standard ready-to-use format suitable for immediate dissemination
to eligible purchasers.
It was also suggested that the RTC
Page 21
should convey information on properties to clearinghouses even
before it had clear title to them, but that the 90-day clock
should not begin until the RTC had title to the property.
The
plan now requires the RTC to develop procedures, in consultation
with the clearinghouses, to assure an efficient flow of
information from the RTC to clearinghouses and from
clearinghouses to potential purchasers.
Low- and Moderate-income Housing Provisions
The Oversight Board also requested public comment on strategies
for implementing the low- and moderate-income housing provisions
of FIRREA.
Forty-three respondents provided comments on this
topic.
Several respondents stated that the RTC should maximize the
preservation of affordable housing rather than maximizing return.
Several members of the RTC Task Force of the House Banking
Committee noted the need for performance standards to measure RTC
progress in disposing of eligible properties for low- and
moderate-income use.
Other commenters agreed with this
suggestion and recommended that the RTC establish a performance
objective of targeting between 80 and 100 percent of eligible
residential properties to low- and moderate-income housing use.
At this time, it is unclear how many properties will ultimately
be eligible under the affordable housing program, the
availability of clearinghouses in those areas where the property
is located, and the success of an aggressive marketing program.
The strategic plan provides for a period of experimentation by
the RTC in order to learn more about the dynamics of the program.
Respondents recommended that the RTC hire low-income housing
specialists on its staff at the national, regional, and field
office levels.
Some respondents supported the creation of a
Page 22
separate affordable housing section.
The strategic plan calls
for the RTC to have the organizational capability to implement
the affordable housing program and directs it to consider hiring
low-income housing specialists for its field staff.
The strategic plan requires the RTC to develop guidelines for
determining the net realizable market value for eligible
properties.
Several respondents urged that valuation and sales
prices of eligible multi-family properties take into account
applicable very low- and lower-income occupancy requirements.
These recommendations will be considered by the RTC as it
implements the policies and goals and objectives discussed in
this strategic plan.
Respondents were divided over the desirability of bulk sales of
eligible properties.
The NCHP argued:
"By encouraging bulk
purchases in which buyers take properties which range from good
to bad, RTC can sell more properties more quickly, saving
enormously in holding costs and property value reductions due to
deferred maintenance."
Several members of the RTC Task Force of
the House Banking Committee urged that there be clear guidelines
on the use of bulk sales. Other respondents opposed bulk sales
on the ground that nonprofits would be disadvantaged.
The
strategic plan directs the RTC to develop guidelines for
determining when eligible properties should be sold individually
or in bulk to nonprofit organizations and state and local housing
agencies and to consider when savings on disposition costs
justify price discounts on bulk sales.
The strategic plan also requires the RTC to establish guidelines
for giving preference among substantially similar competing bids
for eligible multi-family properties to those offers that propose
to house more very low- and lower-income families and for giving
preference among substantially similar offers for eligible
Page 23
single-family properties to bids from families with lower
incomes.
Twenty-two respondents urged the RTC to provide financial
assistance to qualified purchasers in the form of below-marketand market-rate seller financing, price discounts, other
subsidies, and assistance with secondary market transactions.
Other respondents recommended that the RTC donate or deeply
discount properties intended for occupancy by special needs
groups, such as the homeless, the elderly, and mentally retarded,
mentally ill, and disabled persons.
RTC financing for
rehabilitation and direct grants to nonprofits were also
suggested.
The strategic plan requires the RTC to provide the
Oversight Board with issues, alternatives, and cost estimates
regarding financial assistance for the purchase of low- and
moderate-income housing, including market-rate and below-marketrate seller financing and price discounts.
It also requires the
RTC, in consultation with HUD, to work with secondary mortgage
market entities to provide housing for low- and moderate-income
households.
Some respondents questioned whether 90 days was long enough for
qualified purchasers to arrange financing. It is expected under
the program that a qualified purchaser of a single-family
property need only make a bona fide offer to purchase a property
within the 90-day right-of-first-refusal period. A qualified
purchaser of a multi-family property has 90 days or until the RTC
declares the property ready to sell to express an interest in
purchasing the property and then has an additional 45 days to
make a bona fide offer.
Respondents urged formalized consultation between the RTC and
state and local housing agencies, national nonprofit
organizations, national and regional advisory committees, and
Page 24
various federal agencies.
The strategic plan calls for extensive
consultation between the RTC, other government agencies, state
and local housing agencies, and nonprofit organizations.
The strategic plan also directs the RTC to fully document housing
activities so that the Oversight Board can monitor the RTC's
effectiveness in meeting FIRREA's affordable housing objectives.
D.
CONFLICTS OF INTEREST AND ETHICAL STANDARDS
The goal of this section of the plan is to adopt conflicts of
interest and ethical standards for RTC employees, officers,
advisory board members, contractors, and agents.
While the Board
did not specifically request comments on these matters, some were
offered.
A number of these comments pointed to the importance of ethical
standards to the success of the RTC.
It was argued that the RTC
needs high ethical standards to avoid even the appearance of
conflicts of interest.
Most of the comments suggested that the
ethical standards needed to be clarified.
For example, could an
agent under contract to the RTC in one region of the country buy
RTC property in another?
Only one comment suggested that the
interim ethics statement was overly stringent and would have
deleterious effects on the overall success of the RTC.
In anticipation of these concerns, the Oversight Board and the
RTC issued proposed ethical standards of conduct rules on
November 28, 1989.
12, 1990.
Comments on these rules are due by January
The RTC has adopted interim ethics rules to be
effective until these proposed rules become final.
Page 25
E.
EXTERNAL RELATIONS
The goal of this section of the plan is to establish and maintain
open communications with the Congress, other government offices,
and the public to increase understanding of RTC policies and
actions.
The Board did not specifically request comments on
these topics and few were received.
In general, those that were
received suggested that membership on the RTC's National and
Regional Advisory Boards be made as open as possible and
represent various viewpoints. No major changes were made in the
proposed plan as a result of these comments.
F.
ADMINISTRATION
The goal of the administration section is to assure that the RTC
has sufficient and effectively managed human and financial
resources to achieve the mission and the goals of the agency.
The Board did not request comments on this topic; however,
several very specific concerns were expressed.
Several
respondents argued that the RTC is a federal agency and,
therefore, subject to rules and regulations of the National
Environmental Policy Act, the Council on Environmental Quality,
the Endangered Species Act, Executive Orders protecting wetlands
and floodplains, and other environmental policies. The
respondents included the National Wildlife Federation, the Texas
Center for Policy Studies, the Department of Interior's Fish and
Wildlife Service, and the U.S. Environmental Protection Agency.
As a result of these comments, the Oversight Board attorneys are
reviewing this question.
In addition, two women-owned firms and the Congressional Black
Caucus urged that minority and women's firms be encouraged to
participate in service and management contracts entered into by
the RTC as much as possible.
For example, criteria for
Page 26
contracting (firm size, resource base, experience) should not
exclude qualified minority-owned and female-owned firms and
should not promote the dissolution or take over of minority firms
by majority firms.
They further suggested that all new contracts
contain a specific requirement for contractors to utilize
minorities and women.
They also recommended that the RTC should
adopt an explicit equal employment and equal contracting policy
statement establishing affirmative action commitment.
In response to these concerns, the strategic plan requires the
RTC to establish a minority and women outreach program.
The
program will actively promote RTC contracting with minority and
women contractors.
The Oversight Board will monitor RTC's
performance in this area.
G.
OTHER
Two other topics raised by commenters were open thrift assistance
and the RTC review of the 1988/1989 FSLIC transactions.
Two
commenters expressed concern that the plan did not explicitly
address the issue of open thrift assistance.
Under FIRREA, the
FDIC through SAIF has the discretion to provide open thrift
assistance under certain limited circumstances. At this time,
however, SAIF has no funds available for this type of assistance.
Under FIRREA, the FDIC may request that the Oversight Board
direct the RTC to provide it with the necessary funds.
A
question has arisen as to whether the Oversight Board should
direct the RTC to allocate funds for open thrift assistance to
SAIF, although it is not specifically directed to so under
FIRREA.
The Oversight Board has strong reservations about diverting
financial resources from the RTC to fund such open thrift
assistance.
Therefore, the Oversight Board will not consider
Page 27
providing these resources unless SAIF specifically requests it to
do so, and then only after staff has first evaluated the past
success of the FDIC in the use of this type of assistance, and
prepared estimates of the level of RTC resources that might be
needed.
GAO raised concern that the draft plan did not address the RTC's
review of the 1988 and 1989 FSLIC resolution actions.
The
Oversight Board agrees that it is imperative that the RTC
immediately begin its review so that any cost savings can be
promptly realized.
The Oversight Board also recognizes, however,
that the RTC needed to address a multitude of start-up issues
and, therefore, has not had sufficient time to conduct its review
of the agreements.
Thus, the current plan does not address the
analysis but instead addresses the process through which the
. analysis is to be completed.
Specifically, while it may be necessary for the RTC to contract
with outside parties to conduct the analysis, the Oversight Board
believes that it is crucial that the RTC carefully monitor the
process and ensure that the methodology employed by contractors
is consistent with the approach that would have been employed by
the RTC itself. The final plan reflects this belief. The RTC
recently issued a request for proposals to conduct this analysis.
The final plan requires the RTC to report back on its findings no
later than August 31, 1990.
Page 28
III. MISSION STATEMENT
The Resolution Trust Corporation should carry out a program,
under the general oversight of the Oversight Board, to manage and
resolve institutions that come under the jurisdiction of the RTC
and to dispose of any residual assets in a manner that:
o
maximizes return and minimizes loss;
o
minimizes the impact on local real estate and financial
markets; and
o
maximizes the preservation of the availability and
affordability of residential property for low- and
moderate-income individuals.
Page 29
IV.
GENERAL POLICY DISCUSSION
Introduction
The purpose of this strategic plan is to set forth the RTC's
goals and objectives in support of its mission.
The Oversight
Board views the strategic plan, which includes the general policy
discussion as well as the goals, objectives, and implementing
procedures, as a living document that will be revisited and
revised over time as the Oversight Board and the RTC gain greater
experience regarding the scope and nature of the challenges
facing the RTC.
The strategic plan's goals establish broad, general direction for
the RTC in six areas:
case resolution, asset disposition,
affordable housing, conflicts of interest and ethical standards,
external relations, and administration.
The strategic plan establishes the general direction for the RTC
by setting forth a series of objectives that provide more
specific statements with respect to the stated goals.
Subject to
the review of the Oversight Board, the RTC is responsible for
developing the procedures and guidelines necessary to implement
the strategic plan. Many of the implementing guidelines and
procedures are explicitly required by FIRREA.
Consistent with FIRREA, the strategic plan generally relies on
the RTC to develop the initial set of specific procedures and
guidelines for implementing the general guidance provided in the
strategic plan.
The Oversight Board views these implementing
procedures as part of the strategic plan.
The Federal Deposit Insurance Corporation was specifically
designated by the Congress under FIRREA as the exclusive manager
of the RTC, based in part on its expertise and proven track
Page 30
record of successfully resolving numerous failed commercial
banks.
With few exceptions, virtually all of the implementing
procedures are scheduled to be delivered to the Oversight Board
for review by March 30, 1990.
When these guidelines and
procedures, written by senior RTC/FDIC staff are combined with
this strategic plan, the result will be a comprehensive
description for how the RTC will operate over the next several
years.
The Oversight Board's reliance on the RTC for the development of
the initial implementing procedures does not reduce the Board's
ultimate responsibility for the successful operation of the RTC.
Instead, it reflects a recognition by the Board that the RTC must
be provided the flexibility, within constraints established by
the Board, to conduct its operations in a manner consistent with
its financial and human resources, its expertise and its first
hand knowledge of the unique challenges that it faces, and the
objectives of FIRREA.
Expenditure Principles
To resolve insolvent thrift institutions, Congress authorized $50
billion. When considering whether the expenditure of funds for
other programs authorized by the statute are appropriate, the
Oversight Board should be provided with a cost estimate of the
program and any other information the Board may require.
If the
program is approved, the RTC should monitor the implementation of
the program and should provide regular reports (including its
costs) to the Oversight Board.
Page 31
A.
CASE RESOLUTION
FIRREA gives the Resolution Trust Corporation (RTC) the
responsibility for managing and resolving all cases involving
depository institutions previously insured by the Federal Savings
and Loan Insurance Corporation (FSLIC) for which a conservator or
receiver is or has been appointed from January 1, 1989 through
August 8, 1992. As of December 22, 1989 there were 281
institutions holding $104 billion in assets under RTC
jurisdiction.
Moreover, the Office of Thrift Supervision (OTS)
recently indicated that it had identified approximately 200
additional institutions with assets in excess of $150 billion
that it may transfer to the RTC over the next three years.
Given
the expected costs associated with resolving the institutions
under RTC jurisdiction, the large backlog of insolvent
institutions and the potential disruption these resolutions could
impose on the financial and real estate markets, it is important
carefully to consider the process by which these institutions are
resolved.
FIRREA also requires the RTC to review case resolutions entered
into by FSLIC between January 1, 1988, and August 9, 1989, the
date of enactment of FIRREA. FIRREA makes the Oversight Board
responsible, in consultation with the RTC, for establishing the
overall strategies, policies and goals related to the
restructuring of these case resolutions.
Consistent with that mandate, the RTC is to review all means by
which it can reduce costs under such agreements.
While FIRREA
does not set a timetable for such a review, the Oversight Board
believes that delaying the review of these FSLIC resolutions may
be costly.
It, therefore, directs the RTC to complete such a
review as expeditiously as possible.
Page 32
In light of the resource constraints faced by the RTC and the
need to move quickly, the RTC intends to use private contractors
to assist in this review.
This is acceptable to the Oversight
Board so long as the RTC carefully monitors the process and
ensures that the methodologies employed by the contractors are
consistent.
It is critical that the RTC make its final report to the
Oversight Board and the Congress as soon as possible and, at a
minimum, no later than August 31, 1990.
The Oversight Board
expects the RTC to provide the Board with frequent interim
reports on the progress being made on this important activity.
FIRREA gives the Oversight Board the authority to allocate the
cost or income of any modification to the FSLIC agreements
between the RTC and the FSLIC Resolution Fund (FRF).
Given the
purpose for which the FRF was created, which was to segregate the
old FSLIC agreements, the Oversight Board will allocate the
income or expenses that result from restructuring the agreements
to the FRF.
Management..insti&utiQns in...Conservatpr5hi.R
It is likely that the RTC will be responsible over the next
several years for the prudent operation of a growing caseload of
institutions in conservatorship.
Some of these institutions may
remain in conservatorship for a year or more before they are sold
or liquidated.
Thus, this strategic plan directs the RTC to
develop procedures for operating these thrifts in conservatorship
in a manner that reduces the RTC's risk exposure and prepares the
institutions for eventual sale or liquidation.
The lending operations of insolvent thrifts in conservatorship
generally have little franchise value, in part because many key
staff will have left the institution.
The liability base of many
Page 33
thrifts in conservatorship includes high cost deposits, brokered
deposits, and secured borrowings that have no franchise value.
It is, therefore, important that while the institution is in
conservatorship, the RTC take appropriate actions to reduce its
risk exposure at the thrifts, reduce thrift operating losses and
pay down high rate liabilities.
To the extent feasible and cost
effective, the asset side of the balance sheet should be reduced
through the packaging or securitization and sale of financial
assets.
To achieve these objectives, this plan directs the RTC to develop
procedures for reducing the liabilities of thrifts and, to the
extent feasible, the costs of those liabilities so that the only
remaining deposits are those with significant franchise value
(i.e., desirable core deposits that can be sold at a meaningful
premium) and the lowest cost form of whatever additional
liabilities may be required.
Those institutions that the RTC identifies as having a deposit
base with significant franchise value should be permitted to
maintain their asset levels.
Any new lending or investments,
however, should be limited to low-risk assets as defined in
FIRREA for institutions failing to meet their minimum capital
requirements. For those institutions with insignificant deposit
franchise value, the RTC should adopt procedures immediately to
begin shrinking such institutions' balance sheets in a
coordinated and orderly manner.
As a general policy, the plan directs the RTC to adopt procedures
such that loan originations cease, and the cash flow from
payments of principal and interest is used to repay high-cost
insured deposits and other secured borrowings.
two exceptions to this policy.
There are only
The first exception is for
Page 34
instances where additional lending would reduce losses on
existing assets or occurs as part of a planned resolution.
Second, consistent with minimizing the cost of resolution,
specific provisions should be made to assure that minority-owned
institutions in conservatorship will not be abolished through
aggressive downsizing.
The plan also requires the RTC to establish a national sales
program to coordinate the disposition of any financial assets
held in conservatorships.
The RTC is encouraged to make maximum
use of the secondary mortgage market agencies, such as the
Federal National Mortgage Association and the Federal Home Loan
Mortgage Corporation, given these agencies' expertise and sales
channels.
Finally, to reduce its overall risk exposure to interest rate
changes and shifts in the yield curve, the plan directs the RTC
to explore the feasibility of hedging its overall interest rate
exposure and to report back to the Oversight Board by March 31,
1990.
Rsspiutipn Prioritisation Schedule
Given that institutional, financial, and human resource
constraints preclude simultaneous resolution of all insolvent
institutions presently under RTC jurisdiction, it is important to
establish a prioritization schedule for case resolutions.
FIRREA
stipulates that the strategic plan for the RTC will include the
"factors the RTC shall consider in deciding the order in which
failed institutions or categories of failed institutions will be
resolved."
There are numerous factors to consider in deciding which
institutions to resolve first.
The Board believes that the most
important factor is the rate of deterioration in net worth of an
Page 35
institution.
This provides a measure of the cost savings the RTC
could achieve by resolving an institution immediately.
Deterioration includes both ongoing operating losses and loss of
franchise value due to eroding customer bases and the loss of key
personnel.
As such, institutions with the highest operating
losses (both in absolute terms and relative to the expected cost
of resolution) and the greatest erosion in franchise value should
be given first priority in order to save the RTC these additional
losses.
Likewise, the ongoing risk exposure to the RTC arising from such
factors as institutions with large interest rate or credit risk
exposure should be considered.
Also, the order of resolutions
should reflect the most efficient use of RTC resources and staff.
The Board recognizes that many of the factors that need to be
considered in establishing a priority schedule are not easily
quantified.
It would not be cost effective, however, to devote
inordinate time and resources to developing a precise priority
schedule if such an effort delays the resolution process.
Therefore, in evaluating the various factors, the RTC should
establish its priorities, at a minimum by quartiies, rather than
attempting to establish the order of resolution for each
institution.
MethQd
.Besojutipi)
In addition to establishing resolution priorities, the RTC must
select a method of resolution for each institution. Resolutions
generally take the form of either liquidations or assisted
acquisitions.
In an assisted acquisition, the acquiring entity assumes some
portion of the assets and liabilities of the failed institution.
The RTC provides sufficient cash to the acquiring institution to
Page 36
offset the difference between the amount of liabilities assumed
and the market value of assets acquired from the failed
institution -- net of any premium paid by the acquiring
institution for the franchise value.
To the extent the acquiring
institution acquires substantially all of the assets of the
failed institution, the transaction is termed a "whole thrift"
purchase and assumption.
If the acquiring institution acquires
only the "good" assets (e.g., cash, securities, and performing
loans), the transaction is termed a "clean thrift" purchase and
assumption.
There is no precise line of demarcation between a
whole-thrift transaction and a clean-thrift transaction.
In selecting a method of resolution, FIRREA, by cross referencing
the Federal Deposit Insurance Act, prohibits the RTC from
providing assistance in an amount (including reasonably
ascertainable foregone federal tax revenues) in excess of that
required to liquidate an institution, unless the RTC determines
that the continued operation of the institution is essential to
provide adequate banking services in its community.
FIRREA also
stipulates that the RTC conduct its operations in a manner which
"maximizes the net present value return from the sale or other
disposition of institutions," and "minimizes the amount of any
loss realized in the resolution of cases."
Finally, FIRREA
stipulates that this strategic plan and its implementing
guidelines and procedures must include "standards the Corporation
shall use to select the appropriate resolution action for a
failed institution," and "factors the Corporation shall consider
in deciding whether non-performing assets of the failed
institution will be transferred to the acquiring institution
rather than retained by the Corporation for management and
disposal."
This latter requirement regarding the treatment of
non-performing assets draws attention to the whole-thrift versus
clean-thrift decision.
Page 37
As a result, this plan requires the RTC to consider each of the
statutorily imposed criteria in selecting the method of
resolution.
The Oversight Board believes that this is best
accomplished by allowing potential acquirers to bid on a variety
of resolution structures (e.g., whole thrift, clean thrift,
branch sales) and having the RTC select the least cost solution.
Financial Assistance
Prior to the passage of FIRREA, various forms of assistance for
thrift resolutions were used to facilitate an assisted
acquisition including, but not limited to, cash, notes, yieldmaintenance agreements, capital-loss coverage, asset puts, and
regulatory forbearances.
Each of these forms of assistance entails different costs and
levels of ongoing risk exposure for the RTC.
It is the
Oversight Board's policy that the period of assistance involving
a financial contingency (asset-puts, asset guarantees, or capital
loss coverage) for the RTC should, in general, be no longer than
6 months and should cover only the period required by the
acquirer to complete its due diligence on the acquired assets.
Ownership interests in resolved institutions allow the RTC to
protect its interests when, at the time of resolution, there is
continued uncertainty regarding the value of the resolved
institution and, therefore, the appropriate amount of assistance.
This uncertainty creates the potential for large upside gains for
the acquirer.
Equity participations, such as common stock, give
the RTC a direct ownership position in a thrift and allow the RTC
to share in upside gains.
Equity participations, however, may create a conflict if the RTC
assumes a controlling position and, thereby, becomes a competitor
with other financial institutions.
Warrants are passive equity
Page 38
instruments that allow the RTC to share in the profits of a
resolved institution, but if structured properly, can avoid the
control issue.
It is the Oversight Board's policy that the RTC
should avoid taking equity interests that permit the RTC to
exercise control or actively participate in the management of
resolved institutions.
The RTC may take passive equity
positions, through the use of warrants or other devices, so as to
permit the RTC to share in any substantial gains by resolved
institutions.
The RTC should develop written guidelines for the
use of permitted forms of financial assistance and passive equity
interests.
Bidding. PfQceguapg
A significant way to reduce the cost of resolutions is to
encourage active participation in the resolution process by all
qualified bidders.
The RTC should encourage the active
participation of women and minorities.
These goals can best be achieved by having an open and widely
publicized bidding procedure and a broad dissemination of
information regarding institutions being marketed and the terms
of previous transactions. In addition, providing sufficient time
to disseminate the pertinent information to a wide range of
bidders and allowing adequate time for carefully constructing
competitive bids, should assure that the RTC receives the best
offer.
Finally, the fair and consistent evaluation of all bids
and the timely notification of rejected bids should encourage
continued participation in future marketing efforts by
prospective purchasers.
The RTC should develop implementation
procedures for each of these areas.
The Federal Deposit Insurance Act, as amended by FIRREA, requires
that if the RTC is overriding state law in the resolution of a
minority-owned institution, the RTC must first solicit offers
Page 39
from another minority depository institution.
Because the
Oversight Board wishes to preserve the minority character of
minority thrift institutions, and because of the costs associated
with a lengthy bidding process, it is the Board's policy that if
the RTC determines that a bid received from a minority
institution or minority group is less costly than liquidation,
the RTC is not required to solicit additional bids.
Furthermore, to facilitate the continuation of minority
institutions, the final plan authorizes the RTC either to
postpone for up to nine months the closing of a transaction until
the qualified minority acquirer finds permanent capital or to
provide up to nine months of bridge financing to qualified
minority acquirers on up to two-thirds of the required capital
for the acquired minority institution.
The financing is to be at
market rates and secured by the capital placed in the institution
by the acquirer.
The maximum amount of such RTC financing that_
can be provided under this program may not exceed $32 million.
The amount of such financing will be reported by the RTC in its
quarterly reports to the Oversight Board.
The initial equity
investment of the acquirer would be at risk in the event the
acquirer was unsuccessful in raising the required capital within
the nine-month time period. The RTC should adopt procedures
immediately to implement this policy.
Use of Private Sector
FIRREA requires the RTC to use the services of private persons if
such services are available and the RTC determines that the
utilization of such services is practicable and efficient.
While
the statute appears to presume that this will occur primarily in
the asset disposition process, the RTC might use the services of
private sector entities in activities related to the resolution
of institutions.
These services could include managing
institutions or performing due diligence for the RTC.
The
Page 40
Oversight Board has already directed the RTC to begin using
private sector services immediately, and this plan directs the
RTC to identify any areas where private sector services could be
used in resolving institutions.
Page 41
B.
ASSET DISPOSITION
Assets not sold as a part of a thrift institution resolution will
have to be disposed of separately by the RTC.
The volume of
assets the RTC will dispose of is uncertain and will depend in
part on the method used by the RTC to resolve thrift
institutions.
Whatever the eventual volume, most of the assets under RTC
jurisdiction will fall into one of three categories:
(1) cash and
readily marketable loans, servicing rights, and securities;
(2)
high risk or otherwise undesirable, but performing, loans; or (3)
real estate owned and non-performing loans, including loans in
foreclosure.
The task facing the RTC for asset disposition is unprecedented in
magnitude and complexity.
The RTC will need to try alternative
approaches, learning from experience what works and what does not
work.
Nothing in this plan is intended to preclude that
flexibility.
It is important that the RTC proceed and continue actively to
dispose of assets immediately in a manner consistent with FIRREA.
As described later in this section, it is the Oversight Board's
policy that the RTC should avoid deferring the marketing of
properties, other than as required to comply with the affordable
housing provisions in FIRREA.
Holding properties off the market
for an extended period of time may increase the ultimate costs of
asset disposition because of the expenses associated with
managing and financing the property while it is under the RTC and
the risks of deterioration and vandalism.
It is, therefore,
important to begin returning assets to the private sector as soon
as feasible.
Moreover, holding property off the market may also
be contrary to the interests of the local community because of
Page 42
the uncertainty arising from not knowing when the property may be
placed in the market for sale.
at t&e Private $e<?tpr in Asset Pi&RPsitjpn
The sheer number of assets to be worked out will require that the
RTC rely heavily on private sector contractors for the management
and disposition of these assets, subject to general oversight and
audit by the RTC.
The private sector's expertise and the
opportunity for the RTC to utilize incentive-based contracts
provide an additional reason for the RTC to use private
contractors whenever practicable and efficient, as called for in
FIRREA.
The RTC should establish annual targets for utilization of the
private sector.
As part of its quarterly planning and budgeting
process, the RTC should determine, based on the type and volume
of assets acquired, the extent to which the private sector will
be utilized.
The RTC's reliance on the private sector should be
measured by a variety of measures.
The RTC should proceed in
such a way that the set of performance measures will indicate
whether the RTC is utilizing the private sector whenever
practicable and efficient.
Incentive Structures in Contracts
The RTC should develop and employ incentive structures tailored
to maximizing the net present value of the assets to the RTC.
While the RTC staff will be monitoring its contractors, it will
be the contractors who, in most instances, manage the assets and
negotiate their disposition, subject to RTC approval.
The RTC
should, therefore, rely on an appropriate incentive structure for
contractors as a means of assuring that the government receives
the maximum net present value return on its assets.
One potential design would have contractors receive compensation
Page 43
as a percentage of proceeds net of expenses, with the percentage
increasing as proceeds increase relative to the estimated market
value of assets.
Any such compensation arrangement for asset
managers should avoid providing contractors with incentives to
postpone or accelerate asset sales relative to the timing that
maximizes the net present value to the RTC.
Furthermore, the
design of any incentive arrangements should take into account
that market values of assets, especially many of those in the RTC
inventory, cannot be estimated with precision.
Regardless of
design, however, no incentive structure can eliminate the need
for managerial oversight by RTC staff.
Neither the eventual proceeds from asset disposition nor the
interim operating returns will be known to the RTC or the
contractor at the time the assets are placed under private
control.
Therefore, when practical, the RTC should enter into
contracts that have the RTC and the contractor sharing in betterthan-expected returns, as well as sharing the risk that net
proceeds will fall short of expectations (i.e., yielding the
contractor less than a market rate of return).
Net proceeds from
sales will reflect both the performance of contractors and market
conditions during the asset management period.
Incentive
contracting structures should hold contractors responsible for
their performance.
csBRg&itiYe Procurement
Depending on the structure of the contract, a variety of
procurement designs may be appropriate for promoting competition
consistent with the objective of maximizing net present value.
In all instances, the RTC must make available in writing and to
all requesting parties its procurement guidelines and procedures.
Bulk Contracting
The RTC should use bulk contracts for asset management and
Page 44
disposition if the RTC deems that they will maximize the net
present value of the proceeds.
(Contracting for management and
disposition of large blocks of assets does not mean that all of
these assets will necessarily be sold in bulk.)
Furthermore, the
administrative constraints on the number of separate transactions
that can be directly executed by the RTC suggests that large,
wholesale transactions may be an efficient method for disposing
of assets.
The RTC should experiment with alternative methods of
structuring bulk transactions.
The RTC can delegate many of the decisions regarding choice of
disposition methods to private contractors, subject to guidelines
established by the RTC.
However, there may be instances in which
the RTC should override the recommendation of its contractors.
For example, using large-volume, single-day sales of individual
properties, especially single-family homes or raw land in
distressed areas, may maximize near-term returns to the RTC but
could have adverse market effects that could be avoided through
an alternative sales method.
continuing.PTC Involvement with Assets..
As with resolutions of insolvent thrifts, the RTC should
generally avoid retaining long-term equity interests in assets
under its jurisdiction. These assets should be sold
expeditiously following orderly and thorough marketing.
The RTC
should explore ways, however, in which it can participate through
passive equity interests in any extraordinary gains that might be
realized by the acquirer of the asset.
The RTC should develop criteria that must be met before the RTC
undertakes major capital improvements (i.e., buildouts of
incomplete properties and major rehabilitation of completed
structures) prior to marketing.
There may be some special cases
in which the net present value of properties to the RTC will be
Page 45
enhanced by capital improvements prior to sale, but in most
instances, properties should be sold in "as is" condition
(exclusive of minor cosmetic repairs).
Financing of Asset Saies
The RTC should provide financing of asset sales sparingly, and
only when necessary to complete real estate transactions that
maximize the present value return to the RTC, net of the value of
any concessions provided in the financing.
If private sector
lenders are unwilling to finance a proposed purchase on terms as
favorable to the buyer as those offered by the RTC, then the RTC
is providing a subsidy that should always be recouped through a
higher purchase price.
Any financing provided by the RTC in asset sales (with the
exception of assets eligible for the affordable housing program,
which will be addressed separately) will be subject to the
following restrictions: only real estate should be eligible for
RTC financing; the buyer of the asset should make a significant
equity contribution (i.e., at least 25 percent, subject to
periodic review by the Oversight Board) and pledge the asset as
collateral; RTC-provided financing should be senior to those of
other creditors; concessionary terms on the financing should be
minimized and always recouped through a higher sales price; all
loans made by the RTC (other than short-term bridge loans) should
be sold to the maximum extent feasible; and performance
guarantees on loans sold by the RTC should not exceed six months
in duration.
The Oversight Board anticipates that most of the
need for seller financing of assets will occur in distressed
areas.
To ensure adequate oversight, the RTC should report on a
quarterly basis the amounts, terms, and conditions of any asset
financings to the Oversight Board.
The Board may decide to limit
the amount of such financings provided by the RTC.
Page 46
Database Development
To assure the RTC's capability to respond to future data
requests, the database system developed to inventory RTC assets
should be flexible and contain as many descriptors of assets as
is practicable.
In addition to specifying the general
characteristics of properties, the database should also identify
those properties with natural, cultural, recreational, or
scientific values of special significance.
While compliance with
the requirement for identification of these significant
properties will be difficult, the RTC should develop procedures
and guidelines for determining these designations as quickly as
practicable.
The RTC should consult with the appropriate
government agencies and private organizations to facilitate this
review.
Asset DisB9sition..in-Bis&K§s$e3 Areas
RTC will be a significant holder of real estate in some local
real estate markets already beset by economic problems and
experiencing declining real estate values.
Special asset
disposition procedures are required to protect against the
dumping of assets while not restricting the flexibility RTC needs
to make sound business decisions. The RTC should consult with
other Federal agencies that are selling assets in the same
markets to minimize the adverse effect of its transactions in
distressed areas and to preserve the availability and
affordability of housing for low-income and moderate-income
households.
FIRREA specifies that in distressed areas the RTC should not sell
at less than a specified minimum disposition price.
The
legislation sets this price at 95 percent of market value and
gives the RTC Board of Directors the authority to change this
percentage if a change is deemed consistent with the overall
objectives of the RTC.
Page 47
The RTC has no present intention to change this percentage, other
than to allow for situations in which sales at prices below 95
percent would save interest expense and holding period and
transactions costs sufficient to offset any shortfall below the
95 percent figure.
These cost savings must be verifiable and
determined on an asset-by-asset basis.
The 95 percent figure
will be reviewed periodically as the RTC gains experience with
asset marketing and as market conditions change.
Outside of distressed areas, the RTC should also strive to sell
only at prices at or near market value, unless otherwise
authorized by the Oversight Board.
The term "market value" is
defined in FIRREA as "the most probable price which a property
should bring in a competitive and open market if: (1) all
conditions requisite to a fair sale are present,
(2) the buyer
and seller are acting prudently and are knowledgeable, and (3)
the price is not affected by any undue stimulus."
Thorough marketing of properties will be particularly important
in distressed areas for the RTC to secure offers near market
value.
But even with careful and comprehensive marketing, market
value and, therefore, the disposition price of RTC properties in
distressed areas will often be a small fraction of book value.
Appraisals are an appropriate tool for estimating market value
for many RTC assets.
However, the RTC should not permit the lack
of qualified appraisers to become a bottleneck that stalls the
process of asset disposition.
FIRREA authorizes alternative
methods for estimating market value of assets, and the RTC should
utilize these alternatives when appropriate.
It is the Oversight Board's policy that the RTC should avoid
deferring the marketing of properties, subject to the right-of-
Page 48
first-refusal marketing provisions in FIRREA.
Holding properties
off the market for an extended period of time will generally not
serve the interests of either the local community or the
taxpayer.
The uncertainty caused by an overhang of properties
held off the market may depress local property values more than
would their sale.
Furthermore, holding rental housing off the
market increases rents and, therefore, may place renters at a
disadvantage.
Properties held off the market -- especially
vacant properties -- can deteriorate and lose value, raising the
cost to the RTC and ultimately to the taxpayer.
Even properties
that do not deteriorate impose carrying costs on the RTC.
The
RTC should not attempt to "outguess the market" by speculating on
future developments not reflected in the current market values of
properties.
The ongoing resolution of insolvent thrift institutions during
the next several years, together with delays in securing title to
properties that come under the RTC's control, will result in the
disposition of RTC's assets over a multi-year period, even if
individual properties are marketed expeditiously.
If the RTC
were to delay disposition of currently marketable properties, it
would only concentrate the peak-load problem, and place pressure
on local markets in years to come.
While the RTC should dispose of properties expeditiously
following thorough marketing, in some instances, certain
marketing methods may have adverse consequences for local
property values that could be avoided.
For example, in areas
where the RTC is a large holder of similar properties, including
raw land, disposition according to a pre-advertised multi-month
marketing schedule may be preferable to disposing of a large
number of properties on a single day.
Page 49
Keep the Market Informed
The RTC should keep market participants and other interested
parties fully informed, to the extent practical, on RTC's plans
for asset sales.
The "overhang" of RTC properties in local real
estate markets increases uncertainty and depresses real estate
values for two reasons: (1) market participants do not know the
RTC's plans for these properties, and (2) even if RTC's plans
were known, the resulting market effects are uncertain.
RTC can
eliminate at least part of this uncertainty by providing as much
information as practical about its inventory and general
guidelines and strategies for asset disposition to all interested
parties in the local market areas where RTC has properties.
Page 50
C.
AFFORDABLE HOUSING PROVISIONS
FIRREA mandates maximizing the preservation of the availability
and affordability of residential real property for low- and
moderate-income individuals.
FIRREA requires that eligible
properties first be offered to qualified purchasers for 90 days
through clearinghouses administered by state housing finance
agencies, the Office of Community Investment or other division of
the Federal Housing Finance Board (FHFB), and certain national
nonprofit organizations.
The 90-day period is commonly referred
to as the right-of-first-refusal period.
This right-of-first-
refusal period entails holding costs which are to be borne by the
RTC.
Eligible single-family properties are to be offered to qualifying
households and to public agencies or nonprofit organizations that
make the properties available for purchase or occupancy by lowerincome families.
Eligible multi-family properties are to be
offered to qualifying multi-family purchasers— including public
agencies, nonprofit organizations and for-profit entities which
promise to meet lower-income occupancy requirements. They must
reserve a minimum of 20 percent of all dwelling units purchased
for very low-income families and at least 15 percent more units
for lower-income families during the remaining useful life of the
property.
"Qualifying households" are potential owner-occupants
who have adjusted incomes at or below 115 percent of area median
income.
"Lower-income families" have adjusted incomes at or
below 80 percent, and "very low-income families," at or below 50
percent, of area median income.
The RTC's implementing procedures for housing disposition should
be designed to maximize the effectiveness of this right-of-firstrefusal period.
To assure that its disposition strategies for
low- and moderate-income housing are effectively implemented, the
Page 51
RTC should consult on an ongoing basis with state and local
housing agencies, other governmental agencies, and national and
local nonprofit organizations with specialized knowledge of lowincome housing.
No later than March 30, 1990, the RTC should develop
comprehensive guidelines and procedures to implement the low- and
moderate-income housing provisions of FIRREA.
(The specific
coverage of these guidelines and procedures is detailed in a
subsequent section of this strategic plan.)
Interim Marketing Period
To avoid keeping needed housing off the market and to avoid any
further deterioration of the eligible properties involved while
comprehensive guidelines are developed by the RTC and reviewed by
the Oversight Board, the RTC may sell eligible properties in
accordance with FIRREA prior to the development and submission to
the Oversight Board of these comprehensive guidelines.
Prior to
beginning such sales, however, the RTC must prepare interim
guidelines for disposition that are in accordance with the lowand moderate-income housing provisions of FIRREA.
These
guidelines may authorize pilot projects that test various program
concepts, but do not include subsidies. The RTC shall provide
its interim guidelines to the Oversight Board prior to selling
eligible property and shall keep the Oversight Board apprised of
its disposition procedures.
cj.eacin<!h9us$s
FIRREA requires the RTC to identify clearinghouses and to provide
them with information on eligible properties so that they can
assist in making such information available to qualifying
households, public agencies, non-profit organizations, and forprofit multi-family purchasers.
State housing finance agencies
and the Federal Housing Finance Board are authorized to act as
Page 52
clearinghouses.
The RTC can also authorize national non-profit
organizations as clearinghouses.
The RTC shall develop
guidelines for entering into contracts with clearinghouses to
carry out their responsibilities and compensating them for the
services that they actually provide.
The legislation specifies which households are qualified to bid
on single-family properties during the right-of-first-refusal
period.
As it initiates its affordable housing program, the RTC
should investigate the feasibility of contracting for the service
of determining which households and organizations are qualified
purchasers, since many state housing agencies, other government
agencies, and non-profit organizations are already experienced in
qualifying purchasers.
To assure a maximum level of operating efficiency by all
clearinghouses, RTC personnel should consult with the FHFB, state
housing finance agencies, and nonprofit organizations to develop
general strategies for ensuring the efficient dissemination of
adequate information to clearinghouses and for ensuring that
clearinghouses will be able to provide this information and
access to properties to qualified buyers on a timely basis.
The
information provided should be in a form suitable for immediate
dissemination by the clearinghouses to qualified purchasers and
include as much information as necessary to assure the most
informed possible basis for judgment by the qualified purchasers.
The RTC should also investigate the extent to which information
about eligible properties may be provided to clearinghouses
before the RTC has title to the properties.
The right-of-first-
refusal period should not begin until the RTC has title.
Marketing
Marketing eligible residential properties may require special
Page 53
techniques that differ from the RTC's normal marketing methods.
The RTC should develop marketing strategies in consultation with
state housing finance agencies, other government agencies, and
non-profit organizations for implementation, either directly or
through contractors (including government agencies and non-profit
organizations).
The RTC should have the organizational capability to implement
the affordable housing program— e.g., the RTC should consider
assigning low-income housing specialists to its field offices.
Disposition of Eligible Properties
FIRREA directs the RTC to determine a market value for each
eligible residential property and sell eligible properties at the
net realizable market value.
The net realizable market value is
the price below the market value that takes into account any
reduction in certain holding and transactions costs resulting
from expedited and direct sale of a property.
Consequently, the
price reduction represents an economic discount, not a price
subsidy.
Costs that can be avoided through expedited or direct sales
include real estate taxes, insurance, maintenance expenses,
security costs, potential diminution in value from the property
being held in inventory, and, if applicable, fees paid to real
estate brokers, auctioneers, or other individuals usually
involved in the sale of property.
The RTC should consider selling eligible properties in bulk to
capable non-profit organizations and state and local housing
agencies.
The reduction in transaction costs to the RTC
resulting from a bulk sale may permit the RTC to sell properties
at a below-market price and still maximize net present value.
Page 54
Competing Bids
When selling single-family properties, the RTC may have to choose
between substantially similar competing offers from low- and
moderate-income households.
In the case of multi-family housing,
FIRREA directs the RTC to give preference to offers that propose
to house more very low-income and lower-income families.
shall establish guidelines to implement this directive.
The RTC
Because
of the need under FIRREA to maximize the preservation of the
availability and affordability of low- and moderate-income
housing, the RTC shall establish guidelines that give preference
among substantially similar offers for single-family properties
to bids from families with lower incomes.
Price Discounts and Concessionary Financing
In addition to the holding costs stemming from the 90-day rightof-first-refusal period that is required by FIRREA, the Act also
permits the RTC to provide subsidies such as concessionary
financing and price discounts in the furtherance of FIRREA's lowand moderate-income housing objectives.
Consistent with FIRREA,
it is the Oversight Board's goal that the RTC sell eligible
properties to qualified purchasers.
While the strategic plan does not at this time permit the use of
direct subsidies by the RTC for the marketing of eligible
properties, the Oversight Board will carefully monitor the RTC's
marketing efforts to determine the degree to which FIRREA's
affordable housing objectives are being achieved.
If the Board
determines that the mandatory right-of-first-refusal period is
not meeting the housing objectives of FIRREA, then the Board will
determine if direct subsidies are necessary to meet such
objectives; the appropriate form of the subsidies, if required;
and the total amount of subsidy, if required.
Page 55
Consultation with Other Agencies
FIRREA directs the Secretary of Housing and Urban Development and
the Secretary of Agriculture to expedite the processing of
applications for assistance under a number of specified programs,
including FHA mortgage insurance.
To the extent practical, the
RTC should consult with those agencies, the Department of
Veterans Affairs, and other organizations that can financially
assist qualified households and organizations in purchasing
owner-occupied and rental housing.
These organizations include
the federally sponsored secondary mortgage market agencies and
state and local housing finance agencies.
The legislation requires the Federal Housing Finance Board (FHFB)
to establish an Affordable Housing Program to subsidize interest
rates on advances to member savings institutions for lending for
low- and moderate-income owner-occupied and rental housing.
The
RTC should work with the FHFB as the FHFB designs its Affordable
Housing Program to maximize the mutual effectiveness of the RTC's
and FHFB's respective programs.
Use of Secondary Market Agencies
As required in FIRREA, the RTC shall, in consultation with the
Secretary of HUD, explore opportunities to work with secondary
market entities to provide housing for low- and moderate-income
households.
FIRREA also authorizes the Secretary of HUD to work
with the Government National Mortgage Association, the Federal
National Mortgage Association, the Federal Home Loan Mortgage
Corporation, and other secondary market entities to develop risksharing structures, mortgage insurance, and other credit
enhancements to assist in the provision of property ownership,
rental, and cooperative housing opportunities for low- and
moderate-income families.
Page 56
Enforcement of Low-Income Residency Requirements
FIRREA requires qualified purchasers of eligible multi-family
property to make available a certain number of units for very
low- and lower-income residents during the remaining useful life
of the property.
(The requirements may be reduced for a
temporary period if HUD or the applicable state housing finance
agency determines that compliance is no longer financially
feasible.)
The residency requirements must be recorded in a deed
or other legal instrument.
FIRREA provides that the occupancy
requirements shall be judicially enforceable against the
purchasers of property by affected very low- and lower-income
families.
Record-keeping
In order to facilitate the Oversight Board's review of the lowand moderate-income housing program, the RTC shall keep and
regularly provide to the Oversight Board appropriate records on
eligible properties and their disposition.
These records shall
include a description of the eligible property, its type (multi
family or single-family), location, price, bids received, whether
or not it was purchased for low- or moderate-income use, whether,
in the case of multi-family property, it was purchased for
condominium, coop, or rental use, and any other pertinent data
that the Oversight Board needs to determine the RTC's
effectiveness in meeting FIRREA's housing goals.
In particular, the RTC should provide the Oversight Board with
any pertinent data that the Oversight Board needs to determine
the effectiveness of the right-of-first-refusal period in meeting
the FIRREA's housing goals.
Page 57
D.
CONFLICTS OF INTEREST AND ETHICAL STANDARDS
Conflicts of Interest
Not later than 180 days from the date of enactment of FIRREA, the
Oversight Board and the RTC must promulgate rules and regulations
(1) that are applicable to independent contractors governing
conflicts of interest, ethical responsibilities, and the use of
confidential information; and (2) applicable to members,
officers, and employees of the Oversight Board and the RTC
governing conflict of interest, ethical responsibilities, and
post-employment restrictions.
The RTC has adopted an interim
statement of ethical conduct for independent contractors, pending
promulgation of the regulations required by FIRREA.
The
Oversight Board and the RTC have jointly published and invited
comment on a proposed rule concerning ethical standards
applicable to independent contractors; and the RTC has published
for comment a proposed rule applicable to RTC employees
concerning conflicts of interest and ethical standards.
These
rules bear upon the avoidance of conflicts of interest in the
RTC's contracting and decision making processes.
The RTC is facing a monumental task and will have to rely heavily
on third-party contractors to accomplish that task successfully.
Accordingly, it is important that any conflict of interest
standards not preclude participation by a significant proportion
of the private sector, recognizing, however, that the appearance
of conflicts of interest as well as actual abuses must be
avoided.
In publishing the proposed rule on ethical standards
for independent contractors, the Oversight Board and the RTC
urged the private sector to participate in the rule making
process.
Comments on the independent contractor proposed rule
are to be submitted no later than January 12, 1990.
Page 58
Political Favoritism
FIRREA also requires that measures be taken to avoid political
favoritism and undue influence in contracts and decisions made by
the Oversight Board and the RTC.
Until specific guidelines and
procedures are developed, the RTC will draw upon current FDIC
policies.
However, the RTC will be operating in a more diverse and complex
environment than the FDIC.
Due to the greater number of special
interest groups involved and the greater range of activities the
RTC will be undertaking, the RTC may be subject to more political
pressure.
The RTC is directed to develop specific written
guidelines and procedures concerning the avoidance of political
favoritism and undue influence upon contracting and decision
making, drawing upon current FDIC policies, but with specific
focus upon the situation of the RTC.
In the interim, all communications initiated by senior public
officials (or their staff) with employees conducting the work of
the RTC that are intended to influence a case specific decision
currently before the RTC, shall be logged and the records of such
communications should be made available for public inspection.
Page 59
E.
EXTERNAL RELATIONS
As a new instrumentality of the U.S., it is critical for the RTC
to establish and maintain good relationships and open
communications with other entities.
The RTC must be responsive
to Congressional inquiries and cooperate with other government
offices.
The nature of the mission of the RTC also makes
imperative a positive relationship with the public.
Communications with the Public and Advisory Boards
The National and Regional Advisory Boards, which will be
established by the Oversight Board, will play an important role
in maintaining open communications with the public regarding the
RTC's guidelines and procedures for the sale or disposition of
real property assets.
The National and Regional Advisory Boards
will bring local expertise and concerns to the attention of the
RTC and the Oversight Board and will provide a means for the RTC
and Oversight Board to improve public understanding regarding the
RTC's activities.
Questions or concerns may be raised by the public.
The RTC
should develop mechanisms to monitor and respond to general
complaints and complaints of discrimination on the basis of race,
sex or ethnic group in the solicitation and consideration of
offers.
The complaint mechanism established by the RTC will
provide a means for the public to provide input to the RTC in
this area.
Congressional Reports
FIRREA imposes two reporting periods on the RTC:
1) semiannual
reports covering the October 1 - March 31 and April 1 - September
30 periods; and 2) an annual report covering the January 1 December 31 period.
In addition, FIRREA requires semiannual
appearances by the Oversight Board before the House and Senate
Page 60
Banking Committees to report on RTC progress in certain areas.
These reporting requirements as well as other reporting and
disclosure obligations concerning the RTC's operations, which are
required by Title V of FIRREA, are listed in the Appendix to this
strategic plan.
Page 61
F.
ADMINISTRATION
The Oversight Board oversees and is accountable for the RTC.
In
its oversight capacity, the Board must periodically review the
overall performance of the RTC including its work, management
activities, internal controls, and performance relative to its
approved budget plans.
This section of the strategic plan sets
forth objectives and strategies to assure that the RTC has
sufficient and effectively managed resources to achieve its
mission.
Planning and Budgeting
The RTC should present an annual operating plan and budget to the
Oversight Board for approval for each upcoming calendar year.
The RTC will also provide the Board with a staffing plan,
including planned employee levels for the upcoming year and a
current organizational chart.
The RTC should submit to the Oversight Board, on at least a
quarterly basis, financing requests that describe its projected
use of funds over succeeding weeks and request a general
authorization to spend the projected amount.
After Board staff
review, its recommendation and the RTC's request are submitted to
the Oversight Board for a general authorization to spend all or
part of the requested funds.
When the RTC submits a written request for funds needed for
specific transactions that are consistent with the general
authorization, the funds will be released by the Board.
The
request will be reviewed to determine if it includes all the
required information, is signed by the Certifying Officer, and
conforms with the uses of funds permitted by FIRREA and Oversight
Board policies.
If the Oversight Board has authorized sufficient
funds to meet the request, a staff memorandum including
Page 62
recommended action is prepared and sent to the Oversight Board
CEO.
Only upon the approval of the CEO are funds actually
transferred to the RTC account.
Capital
FIRREA provides $50 billion to cover the losses of insolvent
thrifts.
In addition, the RTC will require substantial amounts
of temporary financing or working capital.
This temporary
financing is necessary in order to carry out the least-cost
resolutions for insolvent thrifts that have substantial amounts
of assets that are not readily marketable.
For these thrifts,
the least-cost resolution methods are either "clean bank" deals
or liquidations.
Both methods allow the RTC to strip out bad
assets and sell them separately from the thrift deposits.
Thus,
rather than have a limited pool of bidders that is interested in
acquiring both a thrift franchise and a group of bad assets, the
RTC can expand the pool substantially by separately marketing the
assets and the thrift franchise to broader ranges of potential
purchasers.
This will save the taxpayer money.
These resolutions require substantial cash up-front — or working
capital — to carry the stripped-out assets until they are sold.
Providing working capital does not represent a cost to the
taxpayer so long as it is backed by the fair market value of the
acquired assets.
When the assets are later sold, the proceeds
will be used to repay working capital obligations.
In short, adequate working capital is crucial to the RTC's
ability to choose the least-cost method over the least-cash
method of resolving institutions, thereby saving taxpayers money.
Without working capital financing, the RTC may have to slow case
resolutions or dump acquired assets to unlock cash for
resolutions.
Neither result is desirable.
Page 63
The staffs of the Oversight Board and the RTC have been reviewing
cash-flow projections resulting from the resolution and asset
disposition policies identified in this strategic plan.
In
addition, they are analyzing mechanisms for funding these
requirements; the Board expects to apprise the Congress regarding
its program for the working capital during the first quarter of
1990.
Minority Contracting
FIRREA requires the Oversight Board and the RTC to:
prescribe regulations to establish and oversee a
minority outreach program within each such agency to
ensure inclusion to the maximum extent possible, of
minorities and women, and entities owned by minorities
and women, including financial institutions, investment
banking firms, underwriters, accountants, and providers
of legal services, in all contracts entered into by the
agency with such persons or entities, public and
private, in order to manage the institutions and their
assets for which the agency is responsible or to
perform such other functions authorized under any law
applicable to such agency.
It is the policy of the Oversight Board that the minority
outreach program established by the RTC should, at a minimum,
include: a definition of what constitutes an eligible individual
or firm; a process for identifying and certifying eligible
minority and women contractors (including firms owned by
minorities or women); the active promotion of the outreach
program to eligible individuals and firms; and the development of
an ongoing monitoring mechanism to allow evaluation of the RTC's
performance under the outreach program.
To facilitate the success of the outreach program, the RTC's
evaluation criteria for selecting among qualified potential
contractors should include a technical factor that reflects
whether the potential contractor is an eligible entity (or a firm
Page 64
contracting with an eligible entity).
Furthermore, as called for in the expenditure principles section
of this plan, the RTC has evaluated the potential costs
associated with a policy of accepting bids submitted by eligible
entities that are slightly higher than non-eligible bidders.
According to that analysis, the RTC has estimated that allowing
minority and women contractors a price advantage of up to three
percent on work done for the RTC will cost approximately $2
million per annum.
Accordingly, the Oversight Board authorizes
an expenditure by the RTC of up to $2 million per annum and $6
million in total for this program.
The RTC should include
expenditures made under this program in its periodic reports to
the Oversight Board.
Reporting Requirements
FIRREA authorizes the Oversight Board to require from the RTC any
reports, documents, and records it deems necessary to carry out
its oversight responsibilities.
Furthermore, FIRREA imposes
reporting requirements on the RTC, including reports to Congress.
The RTC, in consultation with the Oversight Board and Congress,
will streamline the process for responding to the various
reporting requirements imposed on the RTC by Congress, the
Oversight Board, and others, to the extent possible.
The strategic plan requires the RTC to appraise its operations,
including cooperating fully in audits such as those performed by
the Inspector General, Comptroller General, and Oversight Board
to assist its Board of Directors and management in ensuring an
efficient, economical, and effective application of its
resources.
Internal Controls
The RTC must maintain strong internal controls and an accounting
Page 65
system in view of the large amount of assets and funds involved.
The RTC should take all appropriate steps to facilitate periodic
on-site reviews and general evaluations of these controls and
systems by the Oversight Board as it fulfills its oversight
duties.
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V.
GOALS, OBJECTIVES, AND IMPLEMENTATION PROCEDURES
A.
CASE RESOLUTION
GOAL:
Manage and resolve institutions under RTC jurisdiction
in a timely and cost effective manner, while minimizing
the negative effects on local financial and real estate
markets.
OBJECTIVE 1.
Reduce resolution costs and the ongoing risks to
the RTC by establishing conservative operating
procedures for thrifts in conservatorship.
IMPLEMENTATION
PROCEDURES:
A.
Implement procedures for reducing the
liabilities of thrifts in
conservatorship to the level of core
deposits and the lowest cost form of
whatever additional liabilities may be
required.
B.
Limit any new lending or investments by
conservatorships to low-risk assets.
For institutions with no significant
franchise value, shrink such
institutions' balance sheets in a
coordinated and orderly manner,
consistent with continuing the ownership
characteristics of institutions owned by
minorities.
Curtail new lending
activities and use the cash flow from
payments of principal and interest to
repay high-cost insured deposits and
secured borrowings.
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C.
By March 30, 1990, establish a national
sales program to coordinate the
disposition of any financial
assets
held in conservatorships.
D.
By August 31, 1990, report to the
Oversight Board and the Congress its
review of case resolutions entered by
FSLIC between January 1, 1988 and August
9, 1989 and all means by which costs can
be reduced.
E.
By March 30, 1990, report to the
Oversight Board on the feasibility of
hedging the RTC's overall interest rate
exposure.
OBJECTIVE 2.
Reduce resolution costs by establishing a
resolution schedule for conservatorships that
gives priority to institutions with relatively
high rates of deterioration (including both
operating losses and loss of franchise value),
taking into account the ongoing risks to the RTC
and the need to make the most efficient use of RTC
resources and staff.
IMPLEMENTATION
PROCEDURES:
A.
By January 15, 1990, develop written
guidelines and procedures for evaluating
each institution under RTC jurisdiction.
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B.
By January 15, 1990, develop a
prioritization schedule for institutions
to be marketed and resolved after
January 15, 1990, (by prioritizing
institutions at least by quartiles) and
updates thereafter at least 30 days
before the end of each calendar quarter.
OBJECTIVE 3.
Establish procedures for selecting a method of
resolution that is consistent with:
o
the requirements in FIRREA that the RTC
conduct its operations in a manner that
maximizes the net present value of
return from the sale or other
disposition of institutions and
minimizes the amount of any loss
realized in the resolution of cases;
o
Section 13 (c) (4) of the Federal
Deposit Insurance Act that prohibits
providing assistance in an amount in
excess of that required to liquidate an
institution unless the RTC determines
that the continued operation of the
institution is essential to provide
adequate banking services in its
community.
In calculating the cost of
assistance, the RTC shall include
Federal tax revenues foregone by the
Government to the extent reasonably
ascertainable;
Page 69
o
minimizing the ongoing risk exposure to
the RTC;
o
minimizing the effects on local real
estate and financial markets; and,
o
the policies described in this plan
regarding resolution of minority-owned
institutions.
IMPLEMENTATION
PROCEDURES:
A.
By January 15, 1990, develop written
guidelines for the "cost test"
calculation required by Section 13 (c)
(4) of the FDI Act, including methods of
ascertaining the federal tax revenues
foregone by the Government, to the
extent reasonably ascertainable, as a
result of assistance provided pursuant
to section 13(c) of the FDI Act, as
incorporated by section 21A(b)(4).
B.
By January 15, 1990, develop written
guidelines for the loss minimization
criteria in FIRREA, including directions
to minimize any cost that might arise
from Federal tax revenues foregone by
the Government, to the extent reasonably
ascertainable, as a result of assistance
provided pursuant to section 13(c) of
the FDI Act, as incorporated by section
21A(b)(4).
Page 70
C.
Implement procedures, reflecting the
least cost method of resolution, for
identifying the factors the RTC will
consider in deciding whether non
performing assets of a failed
institution will be transferred to the
acquiring institution rather than
retained by the RTC.
D.
Develop written guidelines and
procedures regarding the resolution of
minority-owned institutions, consistent
with the policies set forth in the
discussion section of this plan.
E.
By January 31, 1990, establish written
guidelines on the use of permitted forms
of financial assistance available from
the RTC including passive equity
interests in resolved institutions
consistent with the policies set forth
in the discussion section of this plan.
OBJECTIVE 4.
Develop and implement bidding procedures for
selling institutions under RTC jurisdiction that:
o
encourage active participation by all
qualified bidders, including minorities
and women;
o
provide sufficient time (of at least 4
weeks) for bidders to file necessary
applications and for the chartering,
regulatory and insurance agencies to
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process and evaluate the applications;
o
provide for fair, non-discriminatory
treatment and competition among
prospective bidders;
o
allow potential acquirers to bid on a
variety of resolution structures (e.g.,
whole-thrift, clean-thrift, branch
sales); and
o
enable the RTC to notify bidders of a
rejected bid within 30 days.
IMPLEMENTATION
PROCEDURES:
A.
Publicize the procedures that bidders
must follow to bid on institutions.
B.
By January 15, 1990, develop written
plans for soliciting bids from all
interested qualified buyers without
preference to type of organization,
including procedures for encouraging the
active participation in the bidding
process by women and minorities.
C.
By January 15, 1990, develop written
procedures for:
o
making available to all potential
bidders, to the extent practical,
full information including
financial statements, deposits
levels, branches, and organization
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structures, on each institution
under RTC jurisdiction;
o
making available to all potential
bidders the terms of previous
transactions;
o
the timely and nondiscriminatory
evaluation and selection of offers;
and,
o
notifying rejected bidders within
30 days.
D.
By March 30, 1990, establish written
procedures for accepting and
investigating complaints of
discrimination or unfair treatment in
the consideration of offers.
OBJECTIVE 5.
Establish computer systems and record-keeping and
reporting procedures necessary to keep the
Oversight Board, the President, Congress and the
general public informed of the case resolution
process.
IMPLEMENTATION
PROCEDURES:
A.
By March 30, 1990, in consultation with
the Oversight Board and the Congress,
determine the extent of information
required to be reported under the
provisions of FIRREA and for full and
complete disclosure of the case
resolution process.
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B.
As soon as possible, develop and
implement, quarterly and other periodic
reports that present all required
information in clear and consistent
formats.
OBJECTIVE 6.
To the extent practicable and efficient, use
private sector entities for the management and
disposition of institutions under RTC
jurisdiction.
IMPLEMENTATION
PROCEDURES:
By January 15, 1990, identify areas where
private sector entities could be used to
facilitate the management and disposition of
institutions.
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B.
ASSET DISPOSITION
GOAL:
To dispose of real estate and other assets in such a
way as to maximize the net present value to the RTC
while also minimizing the effect of these transactions
on local real estate and financial markets.
OBJECTIVE 1.
Maximize the net present value recovery to RTC by
establishing appropriate policies, procedures
and/or guidelines concerning:
o
appropriate methods of disposition;
o
asset marketing of pools of assets;
o
preserving and enhancing values during
the asset management process;
o
distressed area designations;
o
establishing and defining market values;
o
provision of seller financing in
accordance with the policies described
in the discussion section;
o
keeping market participants and other
interested parties fully informed, to
the extent practical, on RTC's inventory
and plans for asset sales;
o
the active solicitation of offers from
minorities and women; and
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o
the prohibition of discrimination on the
basis of race, sex, or ethnic group in
the solicitation and consideration of
offers.
IMPLEMENTATION
PROCEDURES:
A.
By March 30, 1990, establish
comprehensive performance standards and
written guidelines on overall asset
disposition strategies.
B.
Consult with the Oversight Board and the
National and Regional Advisory Boards
and revise written guidelines on an
ongoing basis as necessary.
C.
By January 15, 1990, develop record
keeping requirements to comply with the
required semi-annual reporting of RTC's
national inventory of real property
assets.
D.
By January 15, 1990, develop guidelines
and procedures for notifying rejected
bidders within 30 days.
E.
By January 15, 1990, develop guidelines
and procedures for actively soliciting
offers for assets from minorities and
women.
F.
By January 15, 1990, develop guidelines
and procedures prohibiting
discrimination on the basis of race, sex
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or ethnic group in the solicitation and
consideration of offers.
G.
By March 30, 1990, establish written
procedures for accepting and
investigating complaints of
discrimination or unfair treatment in
the consideration of offers of services
to the RTC.
OBJECTIVE 2.
To the extent practicable and efficient, place
assets under private control for management and
disposition under a program that?
o
employs incentive arrangements tailored
to maximizing the net present value of
the assets to the RTC?
o
assures compliance by contractors with
the ethics and conflicts of interest
provisions of FIRREA; and
o
assures open and fair competition for
asset management and disposition
contracts.
IMPLEMENTATION
PROCEDURES:
A.
By January 15, 1990, establish
guidelines concerning contracting with
public and private entities for
performance of asset management and
disposition functions and develop a set
of indicators by which utilization of
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private sector contractors will be
measured.
B.
By January 15, 1990, establish
guidelines concerning incentive
arrangements in asset management and
disposition contracts consistent with
the policy set out in the discussion
section.
C.
By January 15, 1990, establish
procedures to assure compliance by
contractors with the ethics and
conflicts of interest provisions of
FIRREA.
D.
By January 15, 1990, establish
guidelines to assure open and fair
competition for asset management and
disposition contracts.
E.
By March 30, 1990, establish performance
standards for asset management and
disposition contracts.
OBJECTIVE 3.
Minimize the impact of RTC transactions on local
real estate and financial markets, through
procedures consistent with the policy of:
o
marketing properties expeditiously upon
gaining title and disposing of them at a
price near market value; and
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o
keeping market participants and other
interested parties informed, to the extent
practical, on RTC's plans for asset sales.
IMPLEMENTATION
PROCEDURES:
A.
By March 30, 1989, establish written
guidelines for determining market values
of assets based upon market analysis
valuation techniques and sound asset
appraisal practices.
B.
By March 30, 1990, establish written
general guidelines for acceptable
disposition prices in non-distressed
areas.
C.
By March 30, 1990, develop guidelines
for designating distressed areas and
modifying the "95%-of-market value" rule
for minimum disposition prices in
distressed areas.
D.
Establish an informal working group to
consult with other federal agencies that
are selling assets in the same
geographical markets.
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OBJECTIVE 4.
Fully document asset management and disposition
activities to ensure compliance with all relevant
statutory requirements.
IMPLEMENTATION
PROCEDURES:
A.
By March 30, 1990, in consultation with
the Oversight Board and the Congress,
determine the extent of information
required to be recorded and to be
reported under the provisions of FIRREA
and for full and complete disclosure of
the asset disposition process.
B.
Report to the Oversight Board on a
regular basis (and no less frequently
than quarterly) the dollar value, and to
the extent practicable, the number of
assets under RTC control, the assets
sold, and the volume and terms of any
seller financing provided.
C.
Develop and implement, to the extent
possible, semiannual and other periodic
reports that present information in
clear and consistent formats.
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C.
AFFORDABLE HOUSING PROVISIONS
GOAL:
To dispose of eligible single- and multi-family
residential properties in a way that maximizes the
preservation of the availability and affordability of
residential real property for low- and moderate-income
individuals.
OBJECTIVE 1.
Implement the housing and public use provisions of
FIRREA in order to provide home ownership and
rental housing opportunities for very low-income,
lower-income, and moderate-income families.
IMPLEMENTATION
PROCEDURES:
A.
Before March 30, 1990, establish interim
guidelines for review by the Oversight
Board before selling eligible
properties; these guidelines may
authorize pilot projects that test
eligible property disposition program
concepts, but do not provide direct
subsidies.
B.
By March 30, 1990, identify the state
housing finance agencies that, with the
FHFB, will be serving as clearinghouses;
establish
guidelines for determining
which national non-profit organizations
have the capacity to act as
clearinghouses; develop guidelines for
contracting with clearinghouses.
C.
By March 30, 1990, investigate the
feasibility of contracting with other
Page 81
government agencies, state housing
agencies, and nonprofit organizations
for the service of qualifying
purchasers; develop and implement
procedures for qualifying households and
organizations as potential purchasers of
eligible properties.
By March 30, 1990, in consultation with
the FHFB, state housing finance
agencies, and nonprofit organizations,
develop strategies to ensure the
effective and efficient dissemination of
adequate information to clearinghouses
for use during the right-of-firstrefusal period? and develop written
guidelines to assure that clearinghouses
are able to provide this information and
access to properties to qualified buyers
on a timely basis.
(The RTC should also
investigate the extent to which
information about eligible properties
may be provided to clearinghouses before
the RTC has title to them.)
By March 30, 1990, in consultation with
other government agencies, state housing
finance agencies, and nonprofit
organizations, develop a strategy for
actively marketing eligible properties
for sale to qualifying individuals and
organizations? develop organizational
capability to implement the affordable
housing program— e.g., consider
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assigning low-income housing specialists
to field offices.
By March 30, 1990, develop guidelines
for determining the net realizable
market value of eligible properties.
By March 30, 1990, establish guidelines
for determining when eligible properties
should be sold individually or in bulk
to nonprofit organizations and state and
local housing agencies, including an
evaluation of savings on disposition
costs that may justify price discounts
on bulk sales.
By March 30, 1990, develop and implement
guidelines for giving preference among
substantially similar competing bids for
multi-family properties to
those offers
that propose to house more very low- and
lower-income families.
By March 30, 1990, develop and implement
guidelines for giving preference among
substantially similar offers for single
family properties to bids from families
with lower incomes.
By May 30, 1990, provide the Oversight
Board with issues, alternatives, and
cost estimates regarding financial
assistance for the purchase of low- and
moderate-income housing through the
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provision of market-rate and belowmarket-rate seller financing and price
discounts.
By March 30, 1990, develop procedures
for coordinating RTC disposition of
eligible residential properties with
programs at HUD (including FHA mortgage
insurance), the Farmers Home
Administration, the Department of
Veterans Affairs, state and local
housing finance agencies, and other
government agencies.
By March 30, 1990, in consultation with
HUD, develop written guidelines for
conveyance of assets to state and local
government agencies and other agencies
and organizations participating in HUD's
urban homesteading programs.
In consultation with HUD, explore
opportunities to work with the secondary
mortgage market entities to provide
housing for low- and moderate-income
households.
Consult with the Federal Housing Finance
Board about methods for coordinating the
RTC's low- and moderate-income housing
program, to the extent practical, with
the FHFB's Affordable Housing Program
and Community Investment Program.
Page 84
O.
Consult with the national and regional
advisory boards about strategies for
meeting the low- and moderate-income
housing goal.
P.
By March 30, 1990, establish written
guidelines for determining if the value
of an asset is so low that no reasonable
recovery is anticipated.
In such cases,
the RTC may consider potential public
uses, such as housing for lower-income
families (including the homeless), urban
open space, day care centers for the
children of low- and moderate-income
families, and other public purposes
designated by the Secretary of Housing
and Urban Development.
OBJECTIVE 2.
Fully document affordable housing activities to
ensure compliance with all relevant statutory
requirements.
IMPLEMENTATION
PROCEDURES:
A.
By March 30, 1990, in consultation with
the Oversight Board and the Congress,
determine the extent of information
required to be reported under the
provisions of FIRREA and for full and
complete disclosure of affordable
housing activities.
B.
By May 30, 1990, report to the Oversight
Board on the results of pilot projects
to test eligible property disposition
Page 85
program concepts.
Develop and implement, to the extent
possible, semiannual and other periodic
reports that present information in
clear and consistent formats.
Page 86
D.
CONFLICTS OF INTEREST AND ETHICAL STANDARDS
GOAL:
Adopt conflicts of interest and ethical standards for
RTC employees, officers, advisory board members,
contractors, and agents.
OBJECTIVE 1.
Develop regulations and procedures that:
o
govern conflicts of interest, ethical
responsibilities, and post-employment
restrictions and apply to RTC officers and
employees, such regulations and procedures to
be no less stringent than those applicable to
the FDIC;
o
govern conflicts of interest, ethical
responsibilities, and the use of confidential
information and apply to independent
contractors; and
o
ensure that RTC officers, employees, advisory
board members, independent contractors, and
agents meet appropriate standards of
competence, experience, integrity, and
fitness.
IMPLEMENTATION
PROCEDURE:
Proposed rules have been published for
comment and final regulations shall be
promulgated within 180 days of the
enactment of FIRREA.
OBJECTIVE 2.
Develop policies and procedures for avoiding
political favoritism and undue influence in
Page 87
RTC contracts, activities, and decisions.
IMPLEMENTATION
PROCEDURE:
By March 30, 1990, the RTC shall develop
written guidelines and procedures,
specifically appropriate for the RTC,
that draw upon current FDIC policies and
that delineate internal operating
procedures and methods for responding to
inquiries from those who are or have
been in political office.
In the
interim, all communications initiated by
senior public officials (or their staff)
with employees conducting the work of
the RTC that are intended to influence a
case specific decision currently before
the RTC, shall be logged and the records
of such communications should be made
available for public inspection.
Page 88
E.
EXTERNAL RELATIONS
GOAL:
Establish and maintain open communications with the
Congress, other government offices, and the public to
increase understanding of RTC policies and actions.
OBJECTIVE 1:
Promote public understanding of the RTC's policies
and actions.
IMPLEMENTATION
PROCEDURES:
A.
As soon as possible, but no later than March
30, 1990, develop written guidelines and
procedures concerning:
o
providing timely responses to public
inquiries;
o
the RTC's working relationship with the
National and Regional Advisory Boards;
o
mechanisms for accepting general
complaints and mechanisms for accepting
complaints of discrimination on the
basis of race, sex or ethnic group in
the solicitation and consideration of
offers, as required by FIRREA.
B.
Report to Congress on the operations of
the RTC as required.
The
Congressionally-mandated reporting
requirements included in Title V of
FIRREA are listed in the Appendix to
this plan.
Page 89
C.
Prepare other reports requested by the
Congress on a timely basis.
OBJECTIVE 2:
As appropriate, consult with other government
offices in developing guidelines and procedures.
IMPLEMENTATION
PROCEDURES:
As needed, create or participate on
interagency working groups to resolve
interagency issues.
Page 90
F.
ADMINISTRATION
GOAL:
Assure that the RTC has sufficient and effectively
managed human and financial resources to achieve the
mission and the goals of the agency.
OBJECTIVE 1:
Assure that the RTC's resources are effectively
managed to respond properly and promptly to the
agency's needs and priorities.
IMPLEMENTATION
PROCEDURES:
A.
Annually, develop and present to the
Oversight Board, for its approval, an
operating plan and budget.
Provide an annual
staffing plan and an organizational chart for
the upcoming calendar year.
The operating plan and budget for 1990 must
be submitted to the Oversight Board 60
calendar days from the issuance date of this
strategic plan.
Subsequent annual budgets
should be presented to the Oversight Board by
November 30.
B.
Quarterly, the RTC will reassess the
allocation of resources and make adjustments.
C.
By January 31, 1990, develop and present to
the Board for approval a minority and women
outreach program according to the policies
previously outlined in the plan.
The program
should allow up to a 3% price advantage for
minority and women contractors.
The cost to
the RTC of providing this price advantage
Page 91
should not exceed $2 million per annum and $6
million in aggregate.
OBJECTIVE 2:
Ensure fiscal responsibility for operations.
IMPLEMENTATION
PROCEDURES:
A.
As required by FIRREA, provide the Oversight
Board with periodic financing requests for
prior approval that detail:
a) anticipated
funding requirements for operations
including, case resolutions, high cost funds
replacement, liquidity advances,
administrative expenses and asset
disposition; b) anticipated payments on
previously issued notes, guarantees, other
obligations, and related activities; and c)
any proposed use of notes, guarantees or
other obligations.
Such financing requests
shall be submitted on a quarterly basis or
such other period as the Oversight Board
determines necessary.
B.
Establish internal control procedures and
accounting systems covering all aspects of
RTC's activities.
C.
Manage assets under RTC jurisdiction and
working capital in order to allow case
resolutions to proceed at a rate that
minimizes the net present value cost to the
RTC and the American taxpayer.
D.
As soon as practicable, after approval by the
Oversight Board, establish the systems and
Page 92
procedures to implement the working capital
program.
OBJECTIVE 3:
Respond to required reports in a timely and
efficient manner.
IMPLEMENTATION
PROCEDURES:
A.
In consultation with the Oversight Board and
Congress, streamline the process for
responding to the various reporting
requirements imposed on the RTC by Congress,
the Oversight Board, and others, to the
extent possible.
B.
As required by FIRREA, respond to requests
from the Oversight Board for any reports,
documents, and records that it deems
necessary to carry out its oversight
responsibilities.
Objective 4:
Appraise operations within the RTC, including
cooperating fully in independent audits, to assist
the Board of Directors and management in ensuring
an efficient, economical, and effective
application of resources.
IMPLEMENTATION
PROCEDURES:
A.
By March 30, 1990, the RTC Board of Directors
and senior management should develop
management processes designed to ensure
compliance with policies, laws, rules and
regulations.
At a minimum, these processes
should address planning, policy making,
personnel, administration, and management
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information systems.
Cooperate fully in the audits performed by
the Inspector General.
Cooperate fully in the annual audit performed
by the Comptroller General, or other
independent certified public accountant
selected by the Oversight Board, as required
by FIRREA.
Cooperate fully in periodic reviews and
audits of RTC activities performed by the
Oversight Board in fulfilling its
responsibility for reviewing the overall
performance of the RTC, including its work,
management activities, and internal controls,
and the performance of the RTC relative to
approved budget plans as required by FIRREA.
Within 60 days of receiving any audit or
review, develop follow-up procedures to
ensure that deficiencies and recommendations
cited in audits and reviews by the Inspector
General, Comptroller General, Oversight
Board, public accounting firms or others,
receive appropriate corrective action.
Approved by the Oversight Board
December 31, 1989
Page 94
APPENDIX to the Strategic Plan
FIRREA. Title v
Reporting and Disclosure Obligations
for the Resolution Trust Corporation
The following reporting requirements are from Title V of the
Financial Institutions Reform, Recovery, and Enforcement Act of
1989 (Pub. L. No. 101-73, Section 501, 103 Stat. 183, 363-94)
("FIRREA").
All references to Section 21A, are to Section 21A of
the Federal Home Loan Bank Act (12 U.S.C. 1441a), as added by
Section 501(a) of FIRREA.
1.
The RTC shall make available to the public:
o
any agreement by the RTC relating to a transaction that
provides assistance pursuant to section 13(c) of the
Federal Deposit Insurance Act ("section 13(c)"), not
later than 30 days after the first meeting of the
Oversight Board after such agreement is entered into;
and
o
all agreements relating to the RTC's review of prior
cases pursuant to subsection (b)(ll)(B) of 21A.
"Agreement" includes:
a) all documents that effectuate the
terms and conditions of the assisted transaction; b) a
comparison by the RTC of the estimated cost of the
transaction with the estimated cost of liquidating the
insured institution; and c) a description of any economic or
statistical assumptions on which such estimates are based.
The Oversight Board may withhold public disclosure if it
determines by a unanimous vote that disclosure would be
contrary to the public interest.
A written report
Page 95
containing a full explanation of the reasons for such a
determination must be published in the Federal Register and
transmitted to the House and Senate Banking Committees.
Section 21A (k)(2)(A),(B), and (C)
The RTC shall make available to the House and Senate Banking
Committees any agreement by the RTC relating to a
transaction for which the RTC provides section 13(c)
assistance not later than 25 days after the first meeting of
the Oversight Board after such agreement is entered into.
This requirement is in addition to the RTC's obligation to
make such agreements publicly available.
Section 21A (k)(3)(A)
The RTC shall submit a report to the Oversight Board and the
Congress containing the results and conclusions of the
review of 1988 and 1989 FSLIC transactions (pursuant to
subsection (b)(ll)(B) of 21A) and recommendations for
legislative action that the RTC may determine to be
appropriate.
Section 21A (k)(3)(B)
The RTC's Real Estate Asset Division shall publish before
January 1, 1990 an inventory of real property assets of
institutions subject to the jurisdiction of the RTC. The
inventory must be updated semiannually and must identify
properties with natural, cultural, recreational, or
scientific values of special significance.
Section 21A (b)(12)(F)
Page 96
Annually, the Comptroller General shall audit the financial
statements of the RTC unless the Comptroller General
notifies the Oversight Board not later than 180 days before
the close of a fiscal year that it will not perform an audit
for that fiscal year.
In that event, the Oversight Board
must contract with an independent certified public
accountant to perform the annual audit.
All books, records,
accounts, reports, files, and property belonging to or used
by the RTC, or the Oversight Board, or by an independent
certified public accountant retained to audit the RTC's
financial statement, shall be made available to the
Comptroller General.
Sections 21A (k)(l)(A) and (B)
The Inspector General of the RTC shall comply with the
reporting requirements imposed on the Inspector General
pursuant to the Inspector General Act of 1978, as amended.
Section 501 (b) of FIRREA
The RTC shall:
a) document decisions made in the
solicitation and selection process and the reasons for the
decisions; and b) maintain such documentation in the offices
of the RTC, as well as any other documentation relating to
the solicitation and selection process.
Section 21A (b)(12)(C)
The Oversight Board and the RTC shall annually submit a full
report of their respective operations, activities, budgets,
receipts, and expenditures for the preceding 12-month
period.
The RTC shall submit the annual report to Congress
and the President as soon as practicable after the end of
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the calendar year for which the report is made, but not
later than June 30 of the year following that calendar year.
The report shall include:
o
audited statements and such information as is
necessary to make known the financial condition
and operations of the RTC in accordance with
generally accepted accounting principles;
o
the RTC's financial operating plans and forecasts
(including budgets, estimates of actual and future
spending and cash obligations) taking into account
the Corporation's financial commitments,
guarantees, and other contingent liabilities;
o
the number of minority and women investors
participating in the bidding process for assisted
acquisitions and the disposition of assets and the
number of successful bids by such investors; and
o
a list of the properties sold to state housing
finance authorities (as such term is defined in
section 1301 of FIRREA), the individual purchase
prices of such properties, and an estimate of the
premium paid by such authorities for such
properties.
Sections 21A (k)(4)(A),(B), and (C)
The Oversight Board and the RTC shall submit to Congress not
later than April 30 and October 31 of each calendar year, a
semiannual report on the activities and efforts of the RTC,
the FDIC, and the Oversight Board for the 6-month period
ending on the last day of the month prior to the month in
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which such report is required to be submitted.
The report
shall include the following information with respect to the
RTC's assets and liabilities and to the assets and
liabilities of institutions for which the RTC is or has been
the conservator or receiver:
o
the total book value of all assets held or managed
by the RTC at the beginning and end of the
reporting period?
o
the total book value of assets that are under
contract to be managed by private persons and
entities at the beginning and end of the reporting
period?
o
the number of employees of the Corporation, the
Federal Deposit Insurance Corporation, and the
Oversight Board at the beginning and end of the
reporting period?
o
the total amounts expended on employee wages,
salaries, and overhead, during such period that
are attributable to: a) contracting with,
supervising, or reviewing the performance of
private contractors, or b) managing or disposing
of such assets?
o
the total amount expended on private contractors
for the management of such assets?
o
the efforts of the RTC to maximize the efficient
utilization of the resources of the private sector
during the reporting period and in future
reporting periods and a description of the
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guidelines and procedures adopted to ensure
adequate competition and fair and consistent
treatment of qualified third parties seeking to
provide services to the RTC or the Federal Deposit
Insurance Corporation?
o
the total book value and total proceeds from such
assets disposed of during the reporting period;
o
summary data on discounts from book value at which
such assets were sold or otherwise disposed of
during the reporting period.
o
a list of all of the areas that carried a
distressed area designation during the reporting
period (including a justification for removal of
areas from or addition of areas to the list of
distressed areas);
o
an evaluation of market conditions in distressed
areas and a description of any changes in
conditions during the reporting period;
o
any change adopted by the Oversight Board in the
minimum disposition price and the reasons for such
change; and,
o
the valuation method or methods adopted by the
Oversight Board or the RTC to value assets and the
reasons for selecting such methods.
Sections 21A (k)(5)(A) and (B)
Before January 31, 1990, the Oversight Board and the RTC
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shall appear before the House and Senate Banking Committees
to:
o
describe the strategic plan established for the
operations of the RTC?
o
describe the guidelines and procedures established
or proposed to be established for the RTC,
including specific measures taken to avoid
political favoritism or undue influence with
respect to the activities of the RTC;
o
provide any regulation proposed to be prescribed
by the RTC; and
o
provide the proposed case resolution schedule.
Sections 21A (k)(7)(A) and (B)
@FedFRASER