Losses on assets of failed thrifts estimated at 40%


WASHINGTON -- The federal government is likely to lose as much as 40 cents on the dollar in selling its current crop of savings and loan assets, a Los Angeles Times investigation shows.

The losses are expected to be far greater than they have been during the past two years and are likely to add tens of billions to the current $160 billion estimated price tag for the government bailout of the ailing thrift industry.

A computer review of the records of the Resolution Trust Corp., which oversees the S&L; rescue effort, shows a widening gap between the dollar value that the failed S&Ls; had assigned to the mortgages, securities and properties that the government seized when it shut the institutions down and the amount of money that the government is apt to get back when these assets are sold.

The review covered all such assets that the RTC has either placed under private management contracts or opened for bidding.

The study shows that these assets are estimated by the RTC to bring only about $25 billion when they are sold, $15 billion less than the $40 billion value stated for them on S&L; books.

Projecting that same 60 percent recovery rate to an additional $124 billion in assets for which asset-management contracts have not yet been solicited suggests that the losses are likely to grow by another $49 billion -- assuming that the real estate market remains in a slump.

This somber assessment -- gleaned from RTC documents that (( detail current and prospective contracts for management of the seized assets -- casts doubt on more optimistic Bush administration estimates of the S&L; bailout costs and indicates that Congress will once again have to ante up more money.

Treasury Secretary Nicholas F. Brady told Congress last month that the administration hoped to use the proceeds from selling

S&L; assets to repay some of the $100 billion in temporary working capital that it wants to borrow from the Treasury to acquire assets from more failed thrifts.

If the S&L; assets are sold for less than expected, those loans could not be fully repaid and Congress would have to appropriate tax dollars to make up the shortfall.

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