The nation's home builders praised actions by the Oversight Board of the Resolution Trust Corporation that will increase significantly the authority of the RTC to provide financing for buyers of properties that it has inherited from failed or troubled thrift institutions.
The Oversight Board, which sets policies governing the operation of the RTC, announced that the RTC is now authorized to provide up to $7 billion on outstanding seller financing, up from $1.25 billion under previous policy. The changes were adopted for the purpose of accelerating sales of RTC assets.
The financing is available for the sale of "illiquid assets," which are those determined by the RTC to be unmarketable because of a lack of commercial financing on acceptable terms. In a continuation of existing policy, $250 million of the $7 billion is earmarked for the sale of affordable housing to qualified buyers.
"We are pleased that the Oversight Board has granted this significant increase in RTC's capacity to provide seller financing," said Kent Colton, executive vice president of the National Association of Home Builders.
"This step reflects a recognition of the credit crunch that has prevented buyers from obtaining private financing for purchases of assets from RTC. The RTC now needs to move decisively to take advantage of this expanded operating flexibility."
The RTC has experienced difficulty in selling its assets because properties are concentrated in areas where S&L failures have been most prevalent and available capital for real estate has consequently become scarce.
Today's policy statement from the Oversight Board specifies that the RTC can provide seller financing for assets at S&Ls that are under its conservatorship. Under its interpretation of previous oversight policies, the RTC limited seller financing to the sale of assets from failed institutions in receivership.
Although a 15 percent down payment will still generally be required to purchase RTC assets with seller financing, on a limited basis smaller down payments will be acceptable -- when there is evidence of a buyer's commitment and capability to perform on the loan. This condition might be satisfied by funded escrow, a letter of credit, a collectible guarantee or suitable collateral.
The new policy of the Oversight Board has also been designed to help improve returns to the government. Terms will be required so that the loans will be marketable on the secondary market. (In October, the Oversight Board made policy changes to support the packaging of assets into securities so that they could be sold on the secondary market and receive certain types of credit enhancements.)
The Oversight Board urged the RTC to structure its deals with terms that will allow it to share in the upside cash flow and value of assets.