United States General Accounting Office / +/gT(.+ Testimony RI lllllllllll ll 141296 For Release Asset Management: on Delivery 'Resolution Trust Corporation Expected at 1O:OO a.m. EST Needs to Build a Strong May 4, 1990 Foundation to Support j!ts Asset Disposition Efforts Statement of J. William Gadsby Director, Federal Management Issues General Government Division Before the RTC Oversight Task Force Subcommittee on Financial Institutions Supervision, Regulation and Insurance Committee on Banking, Finance and Urban Affairs House of Representatives GAO/T-GGD-90-38 GAO Form 160 (12/87) SUMMARY OF STATEMENT BY J. WILLIAM GADSBY DIRECTOR, FEDERAL MANAGEMENTISSUES U.S. GENERAL ACCOUNTING OFFICE The asset disposition job facing the RTC is unprecedented in both magnitude and complexity. To do this job well, the RTC needs an appropriate management structure, well trained staff, and effective contracting procedures. While RTC is making progress in these areas it is not yet ready to aggressively dispose of assets. For example, GAO believes the following critical elements should be in place before RTC embarks on an aggressive asset marketing and sales effort: -- contractor incentive strategies and performance standards; VW alternative methods for estimating market value; -- management information systems needed to help monitor compliance with laws, regulations, policies and procedures. In addition, GAO believes that guidance and training is needed for RTC staff who handle the contracting and monitoring functions. RTC is using the flexibility provided by the strategic plan to develop a variety of marketing strategies for asset disposition. These include securitization of loans, real estate auctions, and a national marketing program. GAO supports these efforts and believes such strategies should be tested and evaluated before they are used nationwide. As the RTC gets more involved with the actual business of asset management and disposition, it will need to focus its attention on at least three other items: environmental issues, monitoring contracts, and keeping the strategic plan up-to-date. u Mr. Chairman and Members of the Task Force We are pleased to be here today to discuss the progress being made by the Resolution Trust Corporation (RTC) in disposing of assets and to suggest ,some steps it might take to improve that process. My testimony will cover three topics: the asset disposition process, marketing and disposal strategies being tested by RTC, and certain operational issues needing attention. ASSET DISPOSITION PROCESS The asset disposition task facing the RTC is unprecedented in both magnitude and complex'ity. To do this job well, RTC must have an effective management structure in place to manage the assets under its control, a cadre of well-trained staff, and sound contracting procedures. Structure The RTC has organized its asset management activities into three major functions--marketing, asset and contract management, and disposition. A field structure has been set up to do much of the work, but it is not fully staffed yet. Overall, RTC has about 36 percent of its planned 5,400 staff. As of April 30, the staffing levels at the consolidated sites, where most of the ass&t contracting and monitoring work will take place, varied greatly from about 55 percent of full- capacity in Kansas City to 14 percent in Phoenix, which was the last site to be set up. While RTC i,s not yet ready to aggressively dispose of assets, as of March 31, it has reported liquidations through sale, loan collections, and'debt retirements, of about $40 billion in assets. Of this total, about $33 billion, or 83 percent, had been liquidated by the thrifts in the conservatorship program. Further, about 90 percent of the assets sold out of conservatorships have been loans and securities. However, there have been some fairly substantial real estate sales. For example, the Hyatt Grand Champion Hotel in California was sold in March for $66.5 million, which was 104 percent of its appraised value. Also, a garden apartment complex in Houston was sold for $13.6 million, or 117.5 percent of its appraised value. Asset dispositions have occurred primarily in conservatorships because those thrifts usually had a structure in place to market assets. We believe that liquidating certain assets while a thrift awaits resolution is expedient and, because it is being done sooner, can reduce ultimate resolution costs. Training RTC recently established a Training Task Force which is reiponsible for assessing the overall training needs and 2 identifying where training should be strengthened. We believe this is a necessary step in the contracting area because (1) RTC's mandate is to contract out as much work as possible, and (2) much of RTC's staff is either new to the government or from FDIC where the normal practice was to do its own asset management and disposition rather than working through contractors. As RTC intensifies contracting efforts, it becomes more important that field personnel are adequately trained to handle the contracting and monitoring functions and to develop information systems which will permit them to adequately oversee and monitor contractor performance. Procedures The strategic plan called for the RTC to submit to the Oversight Board most of its procedures for implementing the policies in the' plan by March 30. The target dates were met for many implementing procedures. But some important implementing procedures in the asset disposition area related to contractor incentive strategies, contractor performance standards, and' alternative methods for estimating market values are still being developed. As mentioned earlier, we believe these critical procedures need to be in place before RTC embarks on an aggressive asset management and disposition program. 3 // O th e r related areas w h e r e R T C -is still finalizing i m p l e m e n tin g procedures include: -- a n a tio n a l sales program for financial assets held in conservatorship, -- conveyance o f assets to state a n d local g o v e r n m e n ts p a r ticipating in certain HUD programs, -- d e te r m i n i n g th e u s e o f assets where no reasonable recovery is a n ticipated, and -- m a n a g e m e n t inform a tio n system s n e e d e d to h e l p m o n i tor compliance with laws, regulatio n s , policies and procedures. A S S E T D IS P O S ITIO N S T R A T E G IE S Recognizing th e m a g n i tu d e a n d complexity o f th e asset disposition task, th e strategic plan directs R T C to try alternative approaches, learning from experience w h a t works a n d w h a t d o e s n o t work. It furth e r emphasizes th a t n o th i n g in th e plan is intended to preclude such flexibility. R T C h a s b e e n using th e p l a n 's flexibility to i d e n tify a n d test several m a r k e tin g strategies. T h e s e include th e securitization 4 l . Of loans, real esta te a u c tio n s , a n a tio n a l sales c e n ter, and alternatives for estim a tin g market value. W e think th e s e are positive steps and we endorse th e concept o f testin g and evaluatin g th e m b e fo r e n a tio n w i d e i m p l e m e n ta tio n . S u c h actio n will b e tter equip R T C for th e asset disposition task th a t lies ahead. Securitization P rojects R T C h a s reta i n e d th e services o f a n investm e n t banking specialist a n d dealers in asset-backed securiti'es,and m o r tg a g e s to assist in developing a n asset securitization program. This p r o g r a m will cover th e sale o f b o th .p e r fo r m i .n g a n d n o n p e r fo r m i n g m o r tg a g e s , a n d commercial a n d c o n s u m e r loans. R T C e x p e c ts to a n n o u n c e a securitization d e m o n s tration project in a b o u t 3 m o n ths. This project will pool a n d securitize o n e - to four-fa m ily m o r tg a g e s from thrifts located in e a c h o f th e fo u r R T C regions. In a d d i tio n , R T C 's E a s te r n Region is also testin g a program to securitize m o r tg a g e loans to m a k e th e m m o r e m a r k e ta b l e . The region is currently working th r o u g h a d u e diligence process with a goal of removing m u c h o f th e uncertainty over th e quality Of th e loans to b e sold. 5 Auction Project In March 1990, the RTC announced it was soliciting proposals to auction real estate properties. This solicitation has closed and RTC officials say the award should be announced shortly. RTC expects to hold d real estate auction sometime this summer. About $250 million worth of real estate from around the country will be offered for sale. National Marketing Project RTC is also working on a solicitation for services to retain a firm to help develop a national marketing strategy. It expects to have this firm under contract by mid-summer. Other related planned actions include a national sales center, and a nationwide advertising campaign. Further, RTC is exploring alternatives to appraisals for establishing the market value of assets. In our opinion, having such alternatives readily available could be valuable to RTC if either the ability to get timely appraisals or the appraisal results, become a bottleneck in the asset disposition process. We further believe RTC also needs to work with other government agencies such as GSA, VA, and FHA to identify and pursue asset disposition approaches or strategies that are in the best 6 interest of the government as a whole. Indeed, a number of federal agencies have large inventories of similar assets for disposal in the same markets, and it is important that these agencies avoid undue competition with one another. It is also important that they work together to see if the assets they are managing could be used for public purposes that would otherwise . have to be met in whole or in part with federal appropriations. OPERATIONAL ISSUES NEEDING ATTENTION As RTC gets more involved with the actual business of asset management and disposition, we see.three important items it will need to focus on: environmental issues, monitoring contracts, and keeping the strategic plan and implementing procedures up-to- date. We plan to review or monitor each of these areas to assess what RTC is doing. Environmental Issues An emerging issue RTC will face relates to what effect environmental substances such as toxic wastes, asbestos, and PCBs may have on its ability to dispose of real estate. Environmental Protection Agency regulations may require RTC, as receiver, to remedy environmental problems before property can be usgd or sold. RTC will need to determine the extent to which 7 . properties in its inventory are contaminated and will require corrective actions. We were told that RTC has begun the process of identifying affected properties. Once this has been done, RTC will need to develop action plans for any contaminated properties. The removal or containment of contaminating substances could .be very expensive , greatly.increasing the RTC's disposition costs for the affected properties. Contract Monitoring With respect to contracting, it will not be good enough just to have well written contracts. RTC will have to adequately monitor the performance of these contracts to be sure the interests of the government are adequately protected. Given the expected magnitude of the assets to be liquidated, the Comptroller General has identified RTC as one of 14 high risk areas vulnerable to fraud, waste, and mismanagement. We will therefore pay close attention to the contracting area. Updating Policies and Procedures Finally, the Oversight Board has said that the strategic plan will be revisited and revised over time as the Board and RTC gain greater experience regarding the scope and nature of the challenges they face. We endorse this concept. We would also emp"nasize that the Oversight Board and RTC should periodically 8 A: update the strategic plan to reflect current policies and procedures, especially during the initial start up period when changes tend to occur more frequently. This updating is very important because the plan (1) serves as a basic tool for managing RTC and for informing the general public and contractors how RTC operates.(2) provides the Board and RTC with criteria for evaluating progress and (3) enables the Congress to exercise its responsibility to monitor the progress of both the Oversight Board and RTC. That concludes my statement. We would be pleased to answer any questions you may have. 9
Asset Management: Resolution Trust Corporation Needs to Build a Strong Foundation to Support Its Asset Disposition Efforts
Published by the Government Accountability Office on 1990-05-04.
Below is a raw (and likely hideous) rendition of the original report. (PDF)