I ; l , c . United States General Accounting Office Report to the Chairman, House GAO Committee on Banking, Finance and Urban Affairs, House of Representatives July 1990 OBLIGATIONS LIMITATION Resolution Trust Corporation’s Compliance as of March 31, 1990 RE3TRICTED --Not to be released outside the General Accounting OfPice unless specifically appmved by the Offlce of Congressional Relationa GAO/AFMD-90-101 GAO United States General Accounting Washington, Office D.C. 20548 Accounting and Financial Management Division B-240108 July 27, 1990 The Honorable Henry B. Gonzalez Chairman, Committee on Banking, Finance and Urban Affairs House of Representatives Dear ,Mr. Chairman: In a December 19, 1989, letter, you requested that we report quarterly on the Resolution Trust Corporation’s compliance with the maximum obligation limit set forth in the Financial Institutions Reform, Recovery. and Enforcement Act of 1989 (FIRREA). The act provides the formula for calculating the limit and provides $50 billion in financing to resolve troubled savings and loans placed into conservatorship or receivership from January 1, 1989, through August.9, 1992. On June 7, 1990, the Corporation issued to you its first quarterly report of the estimated values of its obligations, assets, and contributions received as of March 31, 1990. The Corporation reported that the financing it has received from the Resolution Funding Corporation (REFCORP) and the Treasury, plus its outstanding obligations exceeded its assets by $15.4 billion, and that its “adjusted obligation level” is there- fore $34.6 billion below the $50 billion limitation on outstanding obligations. Although the Corporation included $18.8 billion received from Treasury in its calculation, it was not required to do so by FIRREA. If this amount were excluded, after the Corporation reaches the $50 billion limit on outstanding obligations as presently calculated, the Corporation would be able to incur an additional $18.8 billion in net obligations without violating the section 501(a) limitation. However, FIRREA does not provide funds to pay the additional obligations. In a September 26, 1989, letter, the Chairman and Ranking Minority Member, Senate Committee on Banking, Housing, and Urban Affairs, advised the Secretary of the Trea- sury of this matter and stated that nothing in FIRREA should be viecved as permanently expanding the Corporation’s $50 billion limitation. C‘on- sistent with the Chairman’s September 26 letter, the Corporation included the $18.8 billion in its calculation. The Corporation’s report and an accompanying schedule we obtained providing details on the mas- imum limitation calculation are included as appendixes I and II. respectively. Page 1 GAO/AFMD-90-101 Resolution Trust (‘oqxmtion ,- B24010f3 Based on our review of the Corporation’s June 7, 1990, report and Results in Brief schedule and its financial records, we determined that none of the cate- gories for the formula required by FIRREA were omitted from the Corpo- ration’s calculation. During our review, we identified potential problems that can or will impact the maximum obligation limitation in the future. We did not attempt to determine the amount of any undisclosed obliga- tions or overvalued assets of the Corporation as of March, 3 1, 1990, which, if disclosed, would have affected its calculation. However, con- sidering the results of our review and the size of the reported excess balance available as of March 31, 1990, we believe there is little risk that the Corporation exceeded the limitation. The Secretary of the Treasury, as Chairman of the Resolution Trust Cor- poration Oversight Board, stated’ that with an aggressive case resolu- tion schedule, the Corporation could reach the $50 billion limit as early as the fourth quarter of the current calendar year. The resolution pace has increased and, as of June 30, 1990, the Corporation had resolved 207 institutions. This figure compares with only 52 institutions having been resolved as of March 3 1, 1990. In testimony given in early April 1990,’ we estimated that the Corporation’s costs will likely exceed $100 billion. As a result, we testified that the Corporation will require at least an additional $50 billion in funds in the future. In his May 23 testimony, the Secretary of Treasury also stated that the amounts authorized for the Corporation in FIRREA will fall short of what is required. He further stated that the Oversight Board intends to work with the Congress and the administration to develop an approach which will provide the Corporation the resources necessary to carry out its responsibilities while maintaining adequate controls. Although the pace of resolutions is a significant factor in determining when the Corporation will reach the maximum limitation, we identified three other potential problems that will also directly affect the cost of resolutions and the rate at which the obligation limit is reached. These are recent and future events concerning the fair market value of assets; noncompliance with Corporation policy governing pledging of collateral; and proposed policies governing representations, warranties, and con- tract services. ‘Statement of Secretary Nicholas F. Brady on Behalf of the Resolution Trust Corporatwn Hefore the Senate Committee on Banking, Housing, and Urban Affairs (May 23, 1990). ‘Resolving the Savings and Loan Crisis: Billions More and Additional Reforms Needed (GAO T- ; Page 2 GAO/AFMD-9@101 Resolution Trust (iwporation 8240108 The Corporation needs to undertake certain actions to resolve the problems we have observed and to establish the basis for measuring associated costs so that future quarterly reports are accurate and informative. We provide recommendations aimed at addressing these problems. In response to the savings and loan industry crisis and the Federal Sav- Background ings and Loan Insurance Corporation’s (FSLIC) mounting losses, FIRREA (Public Law 101-73) was enacted into law on August 9, 1989. The act abolished FSLIC and transferred its insurance function to the Federal Deposit Insurance Corporation. Except for those assumed by the Corpo- ration, FIRREA transferred FSLIC’S assets and liabilities to a newly estab- lished fund, the FSLICResolution Fund. FIRREA also established the Resolution Trust Corporation to resolve the problems of institutions placed into conservatorship or receivership from January 1, 1989, until August 9, 1992.” The act provided the Corporation $50 billion to resolve the problems of those institutions and to pay administrative expenses.’ FIRREA provided the Corporation with certain powers with which to accomplish its task, including the power to issue obligations and guaran- tees during the course of acquiring an institution within its jurisdiction. The full faith and credit of the United States is pledged to the payment of such obligations if the principal amounts and maturity dates are stated in the obligations. However, section 501(a) of FIRREA limits the outstanding obligations of the Corporation and provides a formula for calculating the limitation on such obligations. As stated in FIRREA, the sum of contributions received from REFCORP plus outstanding obligations may not exceed the Corpora- tion’s available cash plus 85 percent of the fair market value of its other assets by more than $50 billion. “In addition to creating the Resolution Trust Corporation, the act created the Resolution Trust Corpo- ration Oversight Board. The purpose of the Oversight Board is to review and have overal! responsi- bility for the Corporation’s activities. ‘As of March 31. 1990, the Corporation received approximately $29.5 billion in funds. The Corpora- tion was provided $18.8 billion from Treasury and %1.2 billion of contributions from the Federal Home Loan Banks which was transferred to the Corporation through REFCORP.Additionally. the Corporation receives proceeds from the $30 billion of bonds authorized by FIRREA to be mued bg REFCORP.-4s of March 31, 1990, REFCORPtransferred $9.5 billion in bond proceeds to the Corporation. Page 3 GAO/AFMD-90-101 Resolution Trust Corporation R-240108 Obligations are defined as including (1) any obligation or other liability assumed by the Corporation from FSLIC, (2) any guarantee issued by the Corporation, (3) the total of outstanding amounts borrowed from the U.S. Treasury as authorized by FIRREA, and (4) any other obligation, direct or contingent, for which the Corporation has a liability to pay. FIRREA provided for the Corporation to receive $18.8 billion from Trea- sury in fiscal year 1989, which the Corporation included in the formula for calculating the limit on outstanding obligations. However, the formula in section 501(a) does not explicitly contain the Treasury funding and there is no basis in the law for concluding that it is encom- passed either by the REFCORP contributions or the obligations compo- nents in the formula. Therefore, as a matter of law, the Corporation is not required to include the Treasury funding in its calculation of whether the FIRREA limitation on outstanding obligations has been reached. However, as previously stated, the Corporation has included the $18.8 billion in calculating the limit on outstanding obligations. As agreed to with your staff, we performed a limited review of the Cor- Objectives, Scope,and poration’s report to test its reasonableness. Specifically, our objectives Methodology were to determine if (1) all categories for the formula required by FIRREA were included in the Corporation’s calculation and (2) the values reported appeared reasonable for select components of the calculation. In addition, we uncovered other factors which could significantly impact the obligation limit and the usefulness of the quarterly report. In order to determine the reasonableness of the values of selected com- ponents included in the Corporation’s calculation, we confirmed that the Corporation received contributions from REFCORP, funding from the U.S. Treasury, and Federal Financing Bank loans for working capital pur- poses in the amounts reported. We also reviewed the framework of the calculations of allowance for losses on claims against receiverships and advances to conservatorships. These calculations are essential to deter- mining the estimated fair market values of the Corporation’s non-cash assets. Our review of the allowance for losses calculation was limited to deter- mining that the framework used to make the calculation considered all appropriate items. For example, the Corporation’s allowance for losses on claims against receiverships properly included an estimate of losses from future assets sales, as well as contingent liabilities arising from Page 4 GAO/AFMD-ml01 Resolution Trust Corporation 5240108 assets sold under asset put arrangements.’ Further, in calculating the allowance for loss on advances, the Corporation applied the rate of loss it expects to incur on conservatorships. We performed our work at the Corporation’s headquarters and, in some instances, in its Central Region. We also performed selected procedures at three conservatorships in the Central Region and made inquiries of management and other personnel where necessary during the period from February 1990 to June 30, 1990. Our procedures primarily con- sisted of interviews, confirmation of balances with third parties, and a determination that amounts reported by the Corporation were sup- ported by the agency’s official financial records. Except for the proce- dures performed, we did not test or verify the books and records of the Corporation or the data contained in appendixes I and II. We performed our work in accordance with generally accepted government auditing standards. The scope of our work, however, did not include a review of the internal control environment. Also, our review of compliance with laws and regulations was limited to the Corporation’s compliance with the obligation limitation. We did not obtain written comments on the draft of the report. We did, however, discuss its contents with cognizant Corporation officials and have included their views where appropriate. In the following sections we discuss various potential problems that can or will affect the measurement of reported components’ values used in the limitation calculation. We also provide recommendations to the Cor- poration aimed at improving the usefulness of the quarterly report. The pace of resolution has a significant effect on the rate at which the Factors That Could Corporation incurs obligations and, thus, on when the Corporation Significantly Impact reaches the maximum limitation. But, our review identified three other the Obligation Limit important factors that could affect the cost of resolutions and the point at which the obligation limitation is reached. These factors are recent and Reasonablenessof and future events concerning the fair market value of assets; noncompli- Its Calculation ance with Corporation policy governing pledging of collateral; and pro- posed policies governing representations, warranties, and contract services. ‘To encourage private enterprise to purchase assets of failed thrifts, the Corporation has been offering, with the sale of assets, “put back” clauses in the contract of sale. These clauses allow the purchaser to give back (to the Corporation) assets it purchased within a specified time penod The Corporation would then pay the purchaser an agreed value of the assets. Page 5 GAO/AFMD-90-101 Resolution Trust Corporation B-240108 Fair Market Value of Overall, the market value of assets is a key component of the calcula- Assets May Be Overstated tion. As of March 31, 1990, the Corporation’s financial records showed a book value for receivership assets of approximately $13.3 billion with an estimated fair market value” of $7 billion, a loss of 45 percent. The book value of real estate accounted for approximately $2.3 billion, a sig- nificant portion of the $13.3 billion in receivership assets. The Secretary of Treasury cited, in his May 23 testimony, the weak real estate market as one of the reasons the Corporation needed additional funds. If real estate values for receivership assets are reduced further as a result of the weak market, then such impaired values will further reduce the amount of additional obligations the Corporation may incur. Recent statements by the Corporation’s management have indicated that asset sales, particularly in real estate, have not progressed as expected. On May 4, 1990, the Corporation’s management testified7 that it is con- sidering accepting prices as low as 70 percent of appraised, or esti- mated, fair market values. Such actions would cast doubt on the reasonableness of the reported fair market values and indicate that the Corporation’s current valuations of these non-cash assets may be overstated. A factor which also bears on the reasonableness of the fair market values reported for these non-cash assets is the quality of appraisals. In a soon-to-be-issued report on the Bank Insurance Fund, we found a number of examples of asset appraisals based on optimistic assumptions that reduced the credibility of the appraisers’ asset valuations. Because the Corporation also uses appraisals in valuing its real estate and other assets, it needs to be alert for optimistic assumptions used by appraisers that could result in the estimated fair market value of assets being sub- stantially overstated. The Corporation’s management stated that they closely monitor the appraisals on real estate and do not believe there is a problem with appraisals made. Failure to reasonably estimate the fair market value of assets could result in overstating the amount of obligations the Corporation may incur. This is a concern that becomes significant as the Corporation “The Corporation deducts, among other things, the costs of disposal to arrive at the reported fair market values. ‘Testimony of William Seidman, as Chairman of the Corporation’s Board of Directors, Before the Subcommittee on Financial Institutions, Supervision, Regulation and Insurance, House Committee on Banking, Finance and Urban Affairs. Page 6 GAO/AFMD-90-101 Resolution Trust Corporation ES240108 approaches the limit. Thus, the tracking and reporting of the actual results of asset sales would improve the usefulness of the quarterly report by providing information necessary to evaluate the accuracy of the estimated fair market value of assets. For example, information such as initial estimated fair market values assigned, date available for sale and date sold, sales price, and gain or loss would be useful. The Corporation’s management stated that they currently track asset sale information for conservatorships, and are planning in the near future to implement a system to track this information for receiverships. Noncompliance With We found instances of noncompliance with Corporation policy con- Corporation Policy on cerning advances made to conservatorships. Such noncompliance could impact the Corporation’s return on asset recoveries, thereby increasing Advances Could Reduce its resolution costs. The Corporation’s written procedures require that Cost Recoveries all institutions receiving advances execute a promissory note for each advance, pledge collateral to secure these advances, and perfect the Cor- poration’s security interest in the collateral. However, we found cases where (1) promissory notes had not been executed as late as 8 months after the respective advances were made, (2) collateral had not been pledged against advances in accordance with Corporation policy, (3) the security interest had not been perfected against collateral that had been pledged, and (4) conservatorship managing agents were uncertain about the Corporation’s collateral requirements. In one of the three institutions we visited, the Corporation could not locate 12 of the 18 promissory notes for advances provided to the insti- tution through October 1989. Subsequent to our inquiries, the Corpora- tion provided signed notes dated June 25, 1990. Furthermore, two of the three institutions we visited had received approximately $250 million in advances from the Corporation, but no collateral had been pledged towards these advances. Due to the limited number of institutions vis- ited, we do not know the full extent of this lack of compliance with Cor- poration policy. Since, as of March 31, 1990, the Corporation had $12.7 billion in advances outstanding to institutions under its conservatorship, there could be substantial sums unsecured. Officials of the Corporation’s headquarters stated that regional manage- ment was responsible for insuring that sufficient collateral has been pledged. However, regional management we interviewed stated they were not even aware, until recently, of the total amount of the Corpora- tion’s advances to individual conservatorships within their geographic boundaries. Page 7 GAO/AFMD-90-101 Resolution Trust Corporation EL240108 Prior to issuing advances, the Corporation’s guidelines require that a blanket security agreement8 be executed. This is important in protecting the Corporation’s interest. However, failing to perfect a security interest on pledged collateral could also adversely impact the Corporation’s interest. Perfection is performing the steps legally required to give the Corporation a claim to an asset and protects that claim in the event that it is challenged. According to internal documents, as of March 31, 1990, the Corporation has not perfected its interest in collateral securing $12.1 billion in advances. Failure to perfect the Corporation’s interest could cause the Corporation to unnecessarily be in a position secondary to, or of lower priority than, other creditors. We interviewed regional management as well as several managing agents of conservatorships in the Corporation’s Central Region. Based on these interviews, we found there was uncertainty over how much collateral should be pledged, what recording procedures should be fol- lowed, and whether collateral information should be sent to the regions or headquarters. However, headquarters management had issued guide- lines to regional management and managing agents concerning the pledging of collateral and perfection. Headquarters management further believes these guidelines are sufficiently clear. For example, in addition to requiring that advances be backed by collateral, the procedures also require that the Corporation’s interest in the collateral be perfected. The Corporation’s management has stated that its legal counsel is cur- rently researching whether perfection of the Corporation’s security interest in collateral is necessary to protect its interest in the event a claim is challenged. The Corporation’s management believes that perfec- tion of the Corporation’s interest may not be necessary. They believe that, more importantly, a blanket security agreement protects the Cor- poration’s interest in the collateral. Furthermore, they believe that since they, in effect, control the operations of the institution, the collateral would not be pledged to other parties for the purposes of securing addi- tional funding without their knowledge. Headquarters management informed us that it is currently taking steps to correct the problems we noted. In future reports we will follow up on the Corporation’s implementation of corrective actions, as well as eval- uate its position on the need to perfect its security interest. ‘Under the blanket security agreement provided in the Corporation’s policy circular, an mstltution pledges as collateral to secure repayment of an advance all property of the institution in the Corpora- tion’s possession or control. The agreement grants the Corporation a security interest in the collateral and its proceeds. Page 8 GAO/AFMM@101 Resolution Trust Corporation R-240108 Proposed Policies The Corporation is also considering other actions which, if adopted, may Governing affect the additional amount of obligations the Corporation may incur. These are (1) giving representations and warranties to the secondary Representations, market and (2) contracting with the private sector for asset Warranties, and management/disposition functions. According to internal Corporation Contracted Services, When documents. the Corporation is currently considering making certain rep- Adopted, May Impact resentations and warranties on asset-backed receivables sold to the sec- Obligations ondary market. As of March 31, 1990, the Corporation’s conservatorships and receiverships controlled approximately $87 billion in receivables that can be sold in the secondary market. Furthermore, the Corporation is attempting to sell the rights to service approximately $50 billion in mortgages,” a transaction that generally includes the offering of warranties and representations. Warranties and representations create contingent liabilities and, if offered, would require the Corporation to estimate related potential losses and reflect the estimates in the obligation limitation calculation. Contingent liabilities of this nature would increase the Corporation’s outstanding obligations and decrease the additional amount of obliga- tions the Corporation could incur. According to Corporation management, sellers of asset-backed receiv- ables to the secondary market are expected to make certain representa- tions and warranties, in the form of factual disclosure, about the assets being sold and are expected to stand behind the accuracy of those state- ments. It is further asserted that, if the Corporation were not to provide representations and warranties commonly found in the secondary market, the mortgage assets under its control would likely be subject to a substantial discount above and beyond the cost of making such repre- sentations and warranties, and certain assets may not be marketable at all. The Corporation’s management has stated that it intends to record these contingent liabilities when appropriate, in addition to establishing a system to track representations and warranties offered and their corre- sponding expiration dates. Liabilities incurred as a result of contracting for services also increase the Corporation’s outstanding obligations and, therefore, decrease the amount of additional obligations it may incur. Management has stated that it intends to contract out 80 percent of its asset management and %ervicing a mortgage includes collecting loan payments and controlling mortgage escrow funds Page 9 GAO/AFMD9@1O1 Resolution Trust Corporation _- B-240108 disposition functions, as well as other services. Although we do not believe that the amount contracted as of March 3 1, 1990, is material, the contracting of such services to the extent the Corporation has indicated could significantly affect the additional amount of obligations the Cor- poration may incur. Management is in the process of implementing a contract management system which is intended to monitor the perform- ance of the contractors, as well as track expected costs. Because these costs include estimates that could ultimately have a significant impact on the obligation limitation calculation, we will be following up on the system’s implementation during future reviews of the Corporation’s quarterly reports. Although the pace of resolutions will have a significant impact on the Conclusions rate at which the Corporation incurs obligations and the amounts which it reports it may incur, other factors could have a significant impact as well. These include overstating the fair market value of assets and implementation of the Corporation’s proposals regarding representa- tions and warranties on receivables sold to the secondary markets and contracts for asset management and disposition functions. Tracking and reporting on these factors in future quarterly reports would enhance the usefulness of those reports by providing decisionmakers with more informative disclosure on the Corporation’s compliance with the obliga- tions limitation. Furthermore, noncompliance with the Corporation’s established policies on advances could also impact on the rate at which the Corporation incurs obligations. We recommend that the Corporation’s Executive Director take the nec- Recommendations essary actions to ensure that l the Corporation’s future quarterly reports to the Chairman, House Com- mittee on Banking, Finance and Urban Affairs, disclose actual results on asset sales in comparison with estimates; l the Corporation’s policies and guidelines on advances to conservator- ships are clarified and followed; and . if representations and warranties are given in connection with the sale of asset-backed receivables and mortgage service rights, an appropriate estimate of the resulting contingent liabilities be made and reflected in the Corporation’s obligation limitation calculation. Page 10 GAO/AFMD-90.101 Resolution Trust C’mporation B240108 We did not obtain written comments on this report. We did, however, Agency Comments discuss its contents with cognizant Corporation officials who agreed with the report’s findings and conclusions. We have incorporated their comments where appropriate. As agreed with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days from the date of this letter. At that time, we will send copies to interested parties and make copies available to others upon request. This report was prepared under the direction of Robert W. Gramling, Director, Corporate Financial Audits, who may be reached on 275-9406 if you or your staff have any questions. Major contributors are listed in appendix III. Sincerely yours, Donald H. Chapin Assistant Comptroller General Page 1 I GAO/AFMD-SO-101 Resolution Trust Corporation Contents Letter Appendix I Resolution Trust Corporation Obligations and Assests as of March 31,lQQO Appendix II 16 Resolution Trust Corporation Maximum Amount Limitation on Outstanding Obligations Appendix III Major Contributors to This Report Abbreviations FIRREA Financial Institutions Reform, Recovery, and Enforcement Act of 1989 FSLIC Federal Savings and Loan Insurance Corporation REFCORP Resolution Funding Corporation Page 12 GAO/AFMD!TJ@1O1 Resolution Trust Corporation Page 13 GAO/AFMD-90-101 Resolution Trust Corporation Appendix I ResolutitionTrust Corporation Obligationsand Assestsas of March 31,199O r June 7, 1990 Honorable Henry B. Gonzalez Chairman Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D.C. 20515 Dear Mr. Chairman: Thank you for your letter of March 9, 1990. We are pleased to furnish the quarterly report which you requested relating to the working capital needs of the Resolution Trust Corporation. The quarterly report provides estimated values of the RTC's obligations and assets as of March 31, 1990, which are used to determine whether the RTC remains within the maximum limitation on obligations as mandated by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. We hope that this information will be of assistance to you. If you have any questions, please let me know. Sincerely, Liii&ffl& David C. Cooke Executive Director Enclosure Page14 GAO/AFMlH@101ResolutionTrustCorporation Appendix I Resolution Trust Corporation Obligations and Assests as of March 31,199O RESOLUTION TRUST CORPORATION Obligations and Assets (S in billions) 11. /Outstanding Obligation5 I I Notes is&d toFederal Financing Bank Other Obligalions Total Outstanding Obligations ) ‘,:“,I 2.6 A / 2. ‘Full Faith and Credit’ Obligations 2.6 B 3. Total Fair Market Value of [Non-Cash) Asse1s Held by RTC 16.2 C 4. Cash Held by RTC 3.2 5. Obligations [Bonds) Issued by REFCORP 9.5 D Notes: A Includes current liabilities (e.g., accounts payable). Also includes expected costs from contractual commitments (e.g., leases) and other contingent liabilities unless already applied lo the net realizable value of RTC claims. Exclude5 the estimated future costs of resolving RTC conservatorships and other troubled thrifts B Includes current liabilities and notes issued lo FFB. C Includes (1) advances 10 conservalorships ($12.7 billion. less a $4.0 billion allowance for a share of the losses 10 resolve these institutions). (2) the net realizable value of RTC claims on receiverships ($7.0 billion), and (3) accrued interest and other assets. Net realizable values of receivership claim5 account for estimated total loss85 to RTC for resolved cases, including conlractual expenses (e.g.. asset management, legal, and appraisal fees) and, where applicable. expected losses resulting from ‘put’ agreements. The obligation limitation counts the tolal of all non-cash assets at 86 percent of the fair market value estimate stared above. D Sum of October ‘69 issue ($4.5 billion) and January ‘90 issue ($5.0 billion). The maximum volume of bonds lo be issued by REFCORP is $30 billion. RTC alSo received $18.6 billion in Treasury funds and a $1.2 billion contribution from Ihe Federal Home Loan Banks (through REFCORP). Page 15 GAO/AFMD-90-101 Resolution Trust Corporation Appendix II ResolutionTrust Corporation Maximum Amount Limitation on OutstandingObligations RESOLUTION TRUST CORPORATION MAXIMUM AMOUNT LIMITATION ON OUTSTANDING OBLIGATIONS (IN MILLIONS) AS OF MARCH 31, 1990 =====================9======= A) CONTRIBUTIONS RECEIVED: -----------_-----*---- 1) TREASURY : 18,800 2) REFCORP: 10,726 --e--e--- TOTAL CONTRIBUTIONS 29,526 -------_- B) OUTSTANDING ----------------------- OBLIGATIONS 1) LEGAL EXPOSURE - ESTIMATED COSTS 84 2) LIABILITIES INCURRED FROM ASSISTANCE AND FAILURES 4 3) CONTRACTUAL OBLIGATIONS (LEASES, ETC.) 95 4) ACCOUNTS PAYABLE AND OTHER LIABILITIES 15 5) NOTES PAYABLE AND OTHER DEBT 2,562 ------e-w TOTAL OUTSTANDING OBLIGATIONS 2,760 --------- Page16 GAO/AFMD-88101ResolutionTrustCorporation AppendixII ResolutionTrust CorporationMaximum Amount Limitationon OutstandingObligations :>ESS: --m-m 2) CASH AND CASHEQUIVALENTS ----------__-___--------- 1) CASH AND EQUIVALENTS 3,181 ----_-___ LESS: _-me 0) ESTIMATEDFMV OF OTHERASSETS ----------------------------- 1) CLAIMS AGAINST RECEIVERSHIPS 5,974 7,028 @ 85% 2) RECEIVABLESFROMOPENINSTITUTIONS 7,751 9,119 @ 85% 3) MISC. RECEIVABLESAND OTHERASSETS 3 3 @ 852 --------- TOTAL OTHERASSETS 13,728 --------- AWUSTEDOBLIGATION LEVEL (A+B-C-D) 15,377 MAXIMUHLEVEL 50,000 --------- EXCESSOF MAXIMUHLEVEL OVERADJUSTED OBLIGATION LEVEL AT 3/31/90 l * $34,623 ========= l * A positive amount indicates compliance with the obligation limitation. It does not represent the limit on additional borrowings. Additional borrowing authority depends on the estimated value of RTC assets and the volume of REFCORP funds raised. L Page17 GAO/AFMD-90-101 Resolution Trust C‘orporation AppendixII ResolutionTrust CorporationMaximum Amount Limitation on Outstanding Obligations FIRREA Section 501(a) (j) Maximum Amount Limitation on Outstanding Obligations Explanatory Notes A. Contributions Received Includes the $18.8 billion of initial Treasury funding, the $1.2 billion FHLB contribution (through REFCORP), and REFCORP bond proceeds. 8. putstandinu Obliaatiom 1.: The expected cost of those pending or threatened litigations, claims, or assessments where an estimated loss to RTC (in its Corporate and Receivership capacities) is both probable and reasonably estimable. These are over and above any legal costs already included in the resolution loss estimates, 2. Liabilities Incurred from Assistance and Failures : These include, among other items, the full face value of the liability related to pending claims of depositors (insured deposits owed but not yet paid). 2. Contractual Obliaations: The non-cancellable portion of outstanding contractual obligations. As of March 31, 1990, these included primarily multi-year leases for space in Washington and other locations. 3. Accounts Payable and Other Liabw: Full face value of routine, current liabilities such as accounts payable and accrued liabilities. 3. Notes Pavable and Other Debt: Full face value of all Federal Financing Bank borrowings and accrued interest due thereon. A. Any expected cost to the Corporation of any guarantee issued or assumed from the FSLIC (i.e., FHLB advances guaranteed by FSLIC). No expected cost to RTC since there are no deficiencies in the underlying collateral on any of these guarantees at March 31, 1990. There were no other guarantees as of that date. 8.: Included in the allowance for losses on resolved institutions is an estimate of 1OSSeS on assets likely to be returned to the RTC under a put agreement. Therefore, the receivables for resolved cases have already been adjusted for the contingent liabilities relating to put agreements. No additional calculation is necessary. Page 18 GAO/AFMD-SO-101 Resolution Trust Corporation Appendix II ResolutionTrust Corporation Maximum AmountLimitationon Outstandingobligations t Lidbill 't ies Related to the Resol ution c , Con t* inaen 0f conservatorshios and Other Troubled Thriffig: Not included as outstanding obligations. C. Bsh and Cash Eauivalents Includes cash, cash equivalents (as defined in FAS W95). D. Estimated Fair Market Value of Other Assets Held bv the Corooration 185% thereof) 1. Claims Agdm.t Receivershm : Included at 85% of the Net Realizable Value of such claims. Lass allowances against these claims are estimates at the time of resolution. RTC currently is implementing policies similar to FDIC policies for valuing claims against receiverships, which consider nondiscounted cash inflows, net of liquidation expenses, in determining the cash available to repay the Corporation. 2. Receivables From Ooen Institutionq: Included at 852 of fair market value. Includes principal on advances, accrued interest and other receivables from conservatorships. The value of the advances is reduced by an allowance representing a share of the losses to resolve these institutions. 3. Miscellaneous Receivables and Other Assets: Includes current assets, claims from depositors pending or unpaid, all at 85 percent. Page19 GAO/AFMD-90-101 ResolutionTrustCorporation Appendix III Major Contributors to This Report William D. Grindstaff, Assistant Director Accounting and Kurt W. Hyde, Audit Manager Financial Management Timothy P. Gonzales, Evaluator Division, Washington, Kent L. EbY, Accountant D.C. (917570) Page 20 GAO/AFMD-90-101 Resolution Trust ( ‘orporation Requests for copies of GAO report 3 should he WJII IO: 1’.8. &ueral Accounting Office Post Office Box 6015 Gait hersburg, Maryland 2087i The first fi\.r copies of each report art* frw. Add~t ioual wpirs are 52.00 each. There is a 25”,, discount ou orders for 100 or more copies mailed to ;t single address. Orders must be prepaid by cash or h) check or rno~w~- order made out to the Superiuteudeut of ~wunwnls.
Obligations Limitation: Resolution Trust Corporation's Compliance as of March 31, 1990
Published by the Government Accountability Office on 1990-07-27.
Below is a raw (and likely hideous) rendition of the original report. (PDF)