26rtcsaffordable.pdf

and

its

First

North

Carolina

Auction

David

Spence

Sharon Levy

On

a lateJuneafternoon, hundreds ofspectators sat

waitingin theyellow heat beneath a big-top tent.

Young

couples

fanned

childrenwith folded

programs

and

craned toseeany

movement

on

stage. Finally as organ musicfilledthetent,the_{master ofceremonies ascended}the

stage

and

barkedgreetings intothemicrophone.

The crowd

was

captivated.

But

this

was

notthe circusthey

had

come

tosee. This

was

Resolution Trust Corporation's Afford-able

Housing Program!

SincetheResolution Trust Corporation

(RTC)

took

itsfirststepstowardimplementingtheAffordableHousing Disposition

Program

in 1989,housingadvocates,

con-gressional sponsors,

and

the press have lambasted the agency's efforts to reconcile the

competing

statutory objectivesoftheprogram.Inrecentmonths,criticismof

the

program

has

been calmed

somewhat

by the

RTC's

successat

moving huge numbers

of low-priced

homes

in

highly publicized public auctions. Unlike the

RTC's

earlier attempts to dispose of its affordable housing

inventory, theauctionshave

been

spared

most

criticism,

attractinginsteadthe fanfare

and

hyperbole ofa big-top circus

coming

totown.

As

partofitssalesblitzkriegcoveringtheNortheast,

Southeast,

and

Southwest,the

RTC

sponsoredaseries

of real estate auctions in

North

Carolina's

Research

TriangleParkin late

June

1991. Allofthe properties,

ranging

from undeveloped

landtosmall

shopping

cen-ters,

were

taken

from

thereal-estate-owned inventories

ofRaleigh'sfailedFirstFederal Savings

and

Loan.

The

107propertieseligible fortheAffordable

Housing

Dis-position

Program were

soldduringto

two

days of

auc-tioning.

Under

the program, low-priced single-family

and

multi-family

homes

areseparated

from

otherassets

David

Spenceisa graduatestudentinbusiness

andlaw and

Sharon Levy is a second-year graduate student in the

Department

ofCity

and

Regional Planningat the

Univer-sity_{of North Carolina}at

Chapel

Hill.Bothareinternsat

the

Downtown

Housing

Improvement

Corporation in

Raleigh,

NC.

and marketed

for90 dayssolely to low-

and

moderate-income

households, nonprofits,

and

public agencies.

According

toits

own

criteria,the

RTC

consideredthe

North

Carolinaaffordablehousing auctiona

smashing

success.

The

question remains

whether

the auction

was

a

success

when

measured

intermssetbystatute,housing

advocates, public agencies,

and

thebuyersthemselves.

How

Bank

Regulators

Became

Housing

Providers

Inearly 1989, President

Bush

unveileda

comprehen-siveplanto resolve thecrisisinthethriftindustryand,in

Bush's words,"to

promote

a safe

and

stablesystem of

af-fordable housing finance through regulatory reform."

The

President's bill

was

sent forreview to the

House

banking committee, chaired by

Rep.

Henry

Gonzalez

(D-Texas).

A

stalwart advocate ofaffordable housing,

Gonzalez had

witnesseda dramaticdecline in

conven-tionalhousingassistance

from

the federal

government

duringthe

Reagan

Administration. Federalbudget au-thorizations forhousing

had

fallen

from

5.2percent of

totalbudgetauthorityduringtheCarterAdministration

tojust0.73percent inReagan's 1989 budget(thenstill

in effect).1

_When

_{the President'sbill}

_{emerged from}

_the

banking

committee

itcarriedan

amendment

creatinga

90-dayrightoffirstrefusalfor

low-income

familiesand nonprofit

and

publicagencies

on

low-cost properties

heldbyfailedSavings

&

Loan

institutions(S&Ls).

The

amendment

met immediate

opposition

from

the

Ad-ministration

which

foresaw delay

and

increased costs

resulting

from

the affordablehousingprovisions.

In response,

Democrats

in the

House

and

Senate

cited three justifications for attaching housing provi-sionstothe bailoutbill.First,

Democrats would

support

the Presidentifthe statute

were

structurednot simplyas

a bailout,but also as a restatement ofindustry

objec-tives.Second,thehousing

program would

bea

means

of givingotherwisewastedpropertiesbacktothe taxpayers

askedtofundbailout.Third, directing the propertiesto

from

havingtopayhousingsubsidiesforthe

same

fami-liesinthelongrun.

With

the costofthe bailout

was

growing an estimated S20to$30millioneveryday, President

Bush

relented,

and

on August

9, 1989, signed into law

an

amended

versionoftheFinancialInstitutions

Reform, Recovery

and

Enforcement

Act

(FIRREA).

2

_The

ResolutionTrust

Corporation

and

its Affordable

Housing

Disposition

Program were

born.

An

Affordable

Housing

Program

in

a

Hostile

Agency

The

mission ofthe

RTC

is to

manage

and

resolve

failed thrifts

and

todispose ofanyresidualassetsthat

result

from

resolution.Inretrospect,perhapsthe

great-esterrorof

FIRREA's

drafters

was

the attention given

toresolutionofthrifts insteadofassetdisposition.

Al-thoughthe

RTCoperates

under

thesupervision of an

in-dependent

oversightboard,the

RTC's

"exclusive

man-ager" is the Federal Deposit Insurance Corporation (FDIC). Traditionally, the focus ofthe

FDIC

was

to

consult with

and

preserve a troubled institution and,

onlyrarely,toattempttoselltheinstitution asawhole.

Thistraditionhas

had

a

profound

impact

on

the

RTC's

abilitytodischargeitsdutyas asellerofindividual,

low-valueassets.

Also complicating the

RTC's

missionare Congress'

threeseeminglycontradictory mandates.

FIRREA

re-quires that the

RTC

dispose of residual assets in a

manner

that

maximizes

return

and

minimizeslossesto

taxpayers;minimizestheimpact

on

local realestate

and

financial markets;

and

maximizes the preservation of

theavailability

and

affordabilityofresidentialproperly

for low-

and moderate-income

individuals.3

Through-out the process oftranslating Congress' intent in the

Affordable

Housing

Disposition

Program

into

work-able regulations

and

procedures,

RTC

staff

and

housing proponents havecontinuallybuttedheads over

how

to

balancethese

mixed

mandates.

The

efforts of the

RTC

to

implement

FIRREA's

housingprovisions

were

further

undermined

bya staff that

was

ideologicallyunsuitedtothe taskofproviding

affordable housing.

The

former

bank

regulators

who

staffed the

RTC

were

unversedatbreaking

up an

S&L

andsellingitsproperties.

They

werealsouninterestedin

protecting low-cost

homes

from

real estate investors

andmarketing

them

tolow-and moderate-incomefamilies.

More

than a yearafter the

RTC's

start-up,affordable

housing sponsor

Barney Frank complained

that

RTC

officials

"were

offendedatthenotionthattheyshouldbe worrying about

poor

people.

They

didn't

want

to bea

social agency,having responsibilitiesthat

would

inter-ferewiththeir highfinance."4

As

thehousing

program

has_{grown, however,}the

RTC

hashired a multitude of workers

from

other

government programs

serving the poor.

Outline of

the

Program

Under

FIRREA

and

subsequent

amendments,

the

Affordable

Housing

Disposition

Program

requires that the

RTC

givea90-dayrightoffirst refusal

on

"eligible

properties"to"qualifiedpurchasers."Ifthe

RTC

does notreceivean acceptableofferduringthe90-dayperiod,

it

may

selltheproperty

on

the

open

market.

FIRREA

defines qualifiedpurchasersashouseholds earning

no

more

than 115 percent ofthearea

median

income, as well as nonprofit organizations or public

The

efforts

of

the

RTC

to

implement

FIRREA's

housing

provisions

were

further

undermined

by

a

staff that

was

ideologically

unsuited

to

the

task

of

providing

affordable housing.

agencies. Eligibility guidelines for properties are the

same

asthosefoundinsections203(b)(2)

and

221(d)(ii)

ofthe National

Housing

Act.One-unit dwellings

may

nothave an appraised value of

more

than$67,500;

two-unit dwellings, not

more

than $76,000;

and

three-unit dwellings,not

more

than$92,000.Multi-familyhousing

may

have a

maximum

appraised value of $29,000 to $58,392,

depending

on

the

number

of

bedrooms.

Qualifying households

may

purchase single-family

homes

subjcttoa

commitment

to

occupy

the

homes

as

theirprincipleresidencefor at least

one

year.

The

RTC

may

recapture 75 percent ofprofits ifa

home

issold

prematurely

and

without

good

cause. Qualifying

agen-cies

and

nonprofits

must

agreeto rentorresell

single-family

homes

tofamiliesearning

no

more

than

80

per-centof the area

median

income.

When

purchasing

multi-family properties,agencies

and

non-profits

must

reserve

at least20 percent ofthe unitsforvery

low-income

ten-ants,definedashouseholds earning

no

more

than

one-half theareamedian.

An

additional20 percent ofthe

units

must

bereservedfor

low-income

tenants,orthose

earning

80

percent oftheareamedian.

These

percent-agesapplyintheaggregatetoall

complexes

purchased,

which

allowsfor

some

segregation of

low-income

ten-antsinafewbuildings.

To

preventdrasticsegregation,

Congress has recently

amended

program

guidelinesto

Table

1.

Target

Incomes

Calculated

as

Percentage

of

Median Area Income

Family Size

Qualifying

lncome(115%)

Preferred

lncome(80%)

1

2

3

4

$35,150

$40,000

$45,200

$50,250

requireat leastatenpercent

low-income

presenceinall

buildingspurchased.

The

program

also limitsrentpaid

by low-

and

very

low-income

families to roughly 30 percent oftheirincomes.

The

90-daymarketing period operatesslightly

differ-ently for single-family

and

multi-family properties.

Marketing

ofsingle-familyresidencesisconfinedtothe

90-day period, during

which

time the

RTC

considers bids

on

a first-come-first-served basis.

When

choosing

between

substantiallysimilaroffers,the

RTC

givesfirst

preference to households, second preference to

non-Out

of

all

sales

functions, however,

it is

in

mar-keting that

the

RTC

has

best

earned

its

new

nickname,

''Ready

to

Change.

profits,

and

lastpreference topublic agencies. After

the90-dayperiod,allrestrictions

on

salesarelifted.

For

multi-family properties, the

RTC

willonlyaccept written"noticeofserious intent"

from

qualifying pur-chasersduringthe period.After90days,organizations

have an additional45 days tosubmita

bona

fide offer.

The

RTC

thenchooses the bestoffer or, in theevent of

atie,theofferthatguaranteesthe highestpercentage of

low-income

residency. Incontrast to the single-family

rules,evenifeligiblemulti-familypropertiespassthrough

the protective marketing period unsold, residency

re-strictions

remain

effectiveagainstfuturefor-profit

pur-chasers.

FIRREA

created clearinghouses to act as

informa-tionconduits

between

the

RTC

and

qualifying

purchas-ers.

These

may

includestate housing finance agencies,

district Federal

Home

Loan

Banks, or national

non-profits

approved

by the

RTC.

Originally, the

RTC

Oversight

Board

did not contemplate that

clearing-houses

would

participateinmarketing

beyond

dissemi-natingofinformation.

By

contrast,theOversight

Board

has created technical assistance advisors to help

more

actively in

matching

purchasers, properties,

and

financ-ing.

The

RTC

may

also enter into

agreements

with

privaterealestatebrokers, auctioneers,

and

bulk-sales

specialists.

RTC

Under

Fire

From

the outset the

RTC

and

its housing

program

were

besetby

problems

that

FIRREA's

draftersdidnot

anticipate.

Many S&Ls

takenoverhad kept confusing

and

incomplete records,

which

made

the process of securing titleto foreclosedproperty long

and

cumber-some.

To

its later regret, the

RTC

chose to assign propertiestoitsregional

and

consolidatedofficesbased

on

the locationofthethriftthat had securedthe

prop-ertyratherthanthe locationofthepropertyitself.

Given

thegeographicdispersionofinvestmentsbyfailedthrifts, allfourteen consolidatedoffices

may

well

be

responsible

forpropertiesinDallas,forexample.

At

the

same

time, the

RTC

gave branch offices very little authority to

approve

sales. Regional offices independently could only dispose of assets with

book

values of less than

$25,000;consolidatedoffice staffcould onlysell

proper-ties

worth

lessthan$10,000.5

The

most

persistent pitfalls within the affordable

housing program, however,

have been

caused not by

statutory or organizational limitations, but by the

in-transigenceof the

RTC

Oversight Board. Until early

1991, theboard refused to liberalize policies

on

price discounting,sellerfinancing,ormarketingaspermitted

bystatute.Ineacharea the

board

justifieditspositionby

arguingthatCongress'first

two

mandates

ofmaximizing

the return to taxpayers

and

minimizing the impact of

RTC

sales

on

localmarkets,

outweighed

Congress'third

mandate,tomaximizetheavailabilityofaffordablehousing.

Harangued

by congressional sponsors

and

housing

advocates, the

RTC

grudgingly has

made

concessions.

Ironically,the

open

market

has

been

the forcebehind

the

most

progressive policychangesintheprogram.

Changes

in

Pricing,

Seller-Financing,

and

Marketing

The conundrum

ofthe affordablehousing program's

conflicting

mandates

is

nowhere

more

obvious thanin

pricingpolicy,yetpricingisthepuzzlethatthe

RTC,

as

the offspringofthe

FDIC,

is least

equipped

to solve.

FIRREA

allowsfordiscountingtothe extentnecessary

to

make

housing sales to

lower-income

families

and

nonprofitorpublicagenciesfeasible.Still,the

RTC

did

not allow price discounting

when

affordable housing

sales

began

in early 1990. In

May

1990, the oversight

board allowedpropertiesto

be

discountedby15percent

afterfour

months

of

marketing-one

month

after

quali-fyingpurchaserslost their90-dayright offirst refusal.

Predictably,salespricesthroughouttheprogram'sfirst

several

months

averaged just

under

100 percent of

appraisedvalue,orS42,000.6

Not

untildiscounts

were

increasedto20 percentafter

"some

reasonable

market-ing" did sales prices

drop

to 93 percent of appraised

value,or$35,700,duringthelastquarterof1990.7

The

pressure to liberalize discounting policies

in-creased throughearly1991

and

culminatedinan

amend-ment

to

FIRREA

thatallowedthe

RTC

to setprices

on

single-familypropertieswithout regardtoany

minimum

purchase price.8

Although

housing advocates lobbied the

RTC

on

ideologicalgrounds,the

economics

of

car-rying costs provided a far stronger

argument

for

dis-counting.

Using

thecarrying costs

on

HUD-foreclosed

homes

asaproxy, the

RTC

incursabout $18.25aday

on

eacheligibleproperty.9

With

7,500single-family

homes

inthe

program

in

May

1991, the

RTC

was

paying about $137,000 per daytocarryitsinventory.Probably

more

in

responsetothese coststhantothecallsofhousing

the

end

of

August

1991, the averageprice ofa

single-family

home

had

dropped below

$25,000, orjust 67.4

percentofappraisedvalue.10

Seller-financing has developed at

much

the

same

paceaspricingpolicy,slowlyatfirst,but

more

rapidlyof

late.

Because Congress

had

notice

from Housing and

Urban

Development,

Farmer's

Home

Administration,

and

Veteran's Administration housing

programs

that seller-financing

would be

anecessaryevilofsellingto

qualifying families

and

nonprofits,

FIRREA

allowed below-market-rate mortgagesto

be

taken bythe

RTC

on

affordable properties.

However,

inits"StrategicPlan

forthe

RTC,"

the oversight

board

viewed

seller-financ-ingas amarketingtooltobe used only

when

banks

would

not lend

and

only ifthe costoffinancingisoffset bya higherpurchaseprice.In early1990, theboard

imposed

arequirementthatallseller-financed loansbesalable

on

the secondary

market

within

one

year, effectively pre-cludingtheuse offlexibleunderwriting standards with

low-income

buyers. Finally,

more

than ayearinto the

program,the oversight

board

approved up

to

$250

mil-lion in seller-financing for eligible properties with 5 percent

down

payments and below-market

interest rates for families

who

were

already renting the

homes

they

would

buy.

Even

since the agency's

change

ofheart, financing

arranged by the

RTC

has

been

slow to materialize

because oforganizational delays. Sales ofsecuritized

packages of

nonconforming

mortgages required an

amendment

to

FIRREA,

granting

RTC

employees

immunity from

securities violations. Reservations of

mortgage

revenue

bonds

issuedbystate housing

agen-ciesresulted in

commitments

ofalmost

$200

millionby

August

1991,

though

gun-shy banks in the Southwest had

been

willingtolendonlya fractionofthat

amount.

Wary

of

becoming

along-termlenderbecauseits

statu-tory lifeextends only to 1996, the

RTC

currentlywill

finance sales only

when

no

private lender

comes

for-ward.

The

RTC

almost alwaysavoids that situation by

enticing first-mortgage lenders with "soft second" mortgages of5 to20 percent ofthesales price.

Out

ofallsalesfunctions,however,itisinmarketing

thatthe

RTC

has bestearnedits

new

nickname,

"Ready

toChange."

At

the closeof1990, the

RTC

took stock of

itsefforts

and

foundthat75 percent ofitspropertiesin

number

represented only 10 percent ofthe dollarvalue

ofitsinventory

and

thatonly

one

percent ofthe

RTC's

proceeds

were

derived

from

affordablehousingsales.11

The

RTC

was

acquiringlow-valuepropertiesat

approxi-mately three times the rate it

was

selling them.12 In response, theagencyset agoalofselling80 percent ofits

properties

worth

lessthan $100,000 by

June

30,1991.13

Inorderto

meet

itsgoal,the

RTC

planned

more

than

100saleseventstodispose of 9,000affordable

proper-ties throughout the Northeast, Southeast,

and

South-westduringl991.Ataffordablehousingfairs, theagency

prequalified families

on

thespot

and

provided

informa-tionabout areaproperties

and

financing.

At

silent

auc-tions,qualifying families submitted sealed bids

on

ad-vertised

homes.

At

absoluteauctions,such asthe

one

stagedin

North

Carolina,competitive bidding

began

at

$5

and

continued untileveryproperty

on

theblock

was

sold.

To

supportthese events, the

RTCsigned

contracts

withnearly100

government

agencies

and

nonprofitsto

actasclearinghouses

and

technical assistance advisors.

The

RTC

set

up

booths offering bilingual services in

Houston

supermarkets

and

at theTexasstatefair.

The

agency

began

publishingits

own

newsletter,

The

Silver

Lining,forbankers,nonprofits,localgovernments,

and

brokers.

Even

high school cheerleaders

and bands were

recruited to

perform

atauctions.

The

RTC

met

itsgoal.

By

June

30,1991, contracts

had

been

signed

on

85 percent of the 5,200'single-family

homes

that

were on

the

books

at the

end

of 1990.

As

those

who

prepared for or participated in the

North

Carolina auction canattest,the pace ofsales

was

stag-gering.

When

the

RTC

approached

the

North

Carolina

Housing

Finance

Agency

(NCHFA)

inlate

May

about

hosting the auction, the

RTC

had

experienced an 80 percentincreaseinsalesduring thepreceding

month.

Preparation

for

the

North Carolina

Affordable

Housing

Auction

The

affordable housing auction held in

Research

Triangle Park

on June

22

and

23, 1991

was

among

the

firstauctionssponsored bythe

RTC

Mid-Atlantic

Con-solidatedOffice inAtlanta.

NCHFA,

which had

previ-ously contracted to act as an

RTC

clearinghouse,

was

given notice ofthe auctionjust four

weeks

beforethe

firstbids

were

cast.

The

RTC

offered

some

support out

of Atlanta,butresponsibility for publicity,bidder

pre-qualification,

and

inventory preparationfellmainly

on

Hudson

&

Marshall, theGeorgiaauction

company

under

contractwith the

RTC;

First Federal Savings

&

Loan,

theRaleigh

S&L

which

owned

all therealestatetobe auctionedoff;

and

NCHFA.

NCHFA

inturncontracted out

much

ofthe prequalificationof buyerstothe

Down-town Housing Improvement

Corporation of Raleigh, the

Durham

Affordable

Housing

Coalition,

and

the

Orange

Community

Housing

Corporation.

Even

before the auction

team

knew

the size ofthe inventory or the financing available,

newspaper and

Table

2.

The

North Carolina

Auction

in a Nutshell

Dates

June

22-23, 1991

Number

ofProperties

Sold

99

Average

Appraised Value

$67,720

Average

Sales Price

$54,300

Average

Buyer

Income

$30,170

Bidsper Property (Approximate) 8

radio ads

were

run

and

stories

appeared

in the local

press.

NCHFAset

up

atoll-free

phone

linetoreceive

in-quiries,

and

Hudson

&

Marshallscrambledtoprint-up

a brochurefor distribution.

The

RTC

gauged

that

300

prequalifiedbidders

would

be

needed

tosupportsales

comparable

topreviousauctions. Instead,

NCHFA

was

swamped

with

more

than 2,000 inquiries, resultingin

1,000 familiesinterviewed

and 800

prequalifiedto bid.

Hudson

&

Marshall sponsored a "buyer's awareness

preview" outside Raleigh a

week

before the event to familiarizebidderswiththe properties

and

theauction

process;the

crowds

were

fivetimesthatexpected,

back-ing

up

traffic allthe

way

to Interstate40.

Prequalification interviews forbidders lasted thirty

minutes

and

consistedofthreesteps.Staff

determined

if

the

income

figuressupplied bythe familyfell

below

the

program

limitof115percent oftheareamedian,

which

inthe

North

Carolina auctionranged

from

$35,150for

a single-person

household

to $50,250 for a family of

four.

Very

fewfamiliesexceededthelimits.Second,staff

calculated the

maximum

bid a familycouldofferbased

on

theirincome,current debts,

and

financingavailable.

Finally, staffattempted to

answer

questionsaboutthe

auction process

and

the

homes

available. Unfortunately, prequalifiers

had

little information to offer. Virtually

nothing

was

known

about the properties other than

theirlocationandsizeandthat

many

were

new

townhouses

built by bankrupt developers.

Though

no

inspections

were

performed,prequalifierslearnedthat

some homes

stilllackedcarpetingorbathtubs.

RTC

policyprevented

bidders

from

learning theappraisedvaluesofthe

prop-erties.

Two

financing packages

were

available to bidders.

The

RTC

was

willing to provide 30-year, fixed-rate

mortgagesat9.75percent topurchasers

who

could not

find private financing. Familiesearning

below

80 per-cent ofthe area

median income would

pay 3 percent

down;

otherqualifyingpurchasers

would

pay5percent

down.

The

RTC

would

payallclosing costs

and

mort-80-100%

of

Median

41%

gage insurance, leaving buyers to pay property taxes,

titleinsurance,

and

homeowner's

dues.

NCHFA

had

re-served$500,000for first-time

home

buyers

who

earned

lessthan80percent of the

median

income.

The

NCHFA's

15-year, fixed-ratefinancingof

80

percent ofthesales

pricecould

be

combined

witha second

mortgage from

the

RTC

for15percent ofthe price

on

the

same

terms.

Winning

bidders

were

not requiredtouseeither

RTC

or

NCHFA

financing,

and

itappearsfewdid.

Results of

the

Auction

The

biddersassembled

under

the big-top tentatthe affordablehousing auction could notbedescribedasa

crowd

of welfarerecipientsor "the

working

poor,"nor

were

they aherd ofdisguisedyuppies. It

appeared

that

the

RTC

had

achievedthe

same

economic and

racialmix

that characterized earlier fields ofbidders in Boston, Savannah,

and

Austin.

However, winning

biddersatthe

North

Carolina auction

appear

tohave

been

decidedly

more

middle-class than

RTC

buyers nationwide. Pre-liminaryresultsoftheauction

show

theaverage

income

ofa

North

Carolinabuyer

was

$30,500,or87 percentof thearea median.14

For

thefirst twelveauctions in the

mid-Atlanticregion,buyer

income

averaged$23,900,or 69 percent oftheareamedian.15

Nationwide

inJune, the

averagebuyer

incomes

was

just$23,200,or 61percent of thenational median.16

The jump

in

incomes

of

North

Carolina buyers is

partly attributable to the quality ofthe housing sold.

Whereas homes

soldin

Savannah

required

major

struc-tural repairs

and

New

Orleans properties

were

being

usedas crackhouses,

most North

Carolina properties

were

recently constructed in healthy neighborhoods.

Still, price as a percentage of appraised value, which should

remain

constant,

was

slightly higher in

North

Carolina than in other regions.

Although

in

June

the

RTC

was

collecting

under

78 percent of appraisedvalue

nationwide,17propertiesinJune'sauctionsoldfor80.2

percent of appraised value.18

The

$5.4 million in bids thatthe

RTC

acceptedatthe

auction set a record for

af-fordable housing sales, rep-resenting a

whopping

105

percentofthe

book

valueof the 107 properties.

115% of

Median

30%

Less

than

60%

5%

60-80%

of

Median

24%

Figure

1.

Income

of

Buyers

as

a

Percentage

of

Median

Income

Conclusion:

Is

the

RTC

FulfillingIts

Mandate?

After the

North

Carolina auction

drew

to a close and

thebig-top tent

was

rolled

up

fortransporttothenexttown,

one had

to

wonder

ifthis

was

what

Congress

had

in

mind

when

it created the

Program. Strangeasits

means

were,

had

the

RTC

finally

managed

toreconcileits

competing

statutory

mandates?

There

is

no doubt

thattheauctionstrategyserves the

program'sfirstgoalof

maximizing

thereturnto

taxpay-ers

on

the sale of properties.

To

illustrate, the

RTC

settled for87 percent of appraised value

on

single-fam-ily

homes

at the

June

auction. Priorto usingauctions,

the

RTC

was

recoveringabout

96

percent ofappraised

value.

However, had

the

North

Carolina properties

been

marketed

individually,the carrying costsincurred

injust six

months would

have reduced the

RTC's

net

proceedstothe86 percent recoveredinJune.

Through

theauction, the

RTC

was

rid of

most

properties ina

matter of weeks.

Speedy

disposition of properties is

even

more

necessary

now

thatCongress has

made

single-familypropertiesinconservatorship,aswell as

receiver-ship,

permanently

eligible for the affordable housing

program.

The

change

willroughly

double

the

number

of

units intheprogram's inventory.

The

goal ofminimizing the impact of

RTC

sales

on

local realestatemarkets isalsoprobably served bythe

auctions. Priorto

FIRREA's

passage,brokers

and

de-velopersfeared thatifthe

RTC

dumped

its realestate there

would

beasharp

drop

inlocal prices.

The

realevil

has turned out tobethe uncertainty that takeshold of

local markets

when

the

RTC

delays disposition ofits

huge

inventories.

The

sentiment

among

builders

and

economists

now

seems

to be,

"Go

ahead and

getitover

with."19

Whether

auctionsserve the last goalofmaximizing

affordablehousing opportunitiesis,ofcourse, the issue

no

one

agrees on.

By

the

words

ofthestatute, the

RTC

easily meets its

mandate:

FIRREA

requires sales to

families

below

115 percent ofthe nationalmedian,

and

in

August

the

RTC

was

sellingitssingle-family

homes

to

households earning an average of 59 percent of the national

median

20

The

Low

Income Housing

Informa-tionServicehascastserious

doubt

on

theaccuracy ofthe

RTC's

reports,21but evenso,the

RTC

has a50 percent

margin ofsafety

on

its

income

levels.

Most

objectionsto

theprogram, therefore, are

aimed

at the

way

the

RTC

sells its affordable housing.

The

auction is a classic

example

ofa

forum

where

truly

low-income

families are

easily

muscled

out bythe middle-classor byhouseholds

whose incomes

understatetheiractual

upward

mobility.

The

disparity in buying

power

is

more

pronounced

in

situations

where

almost

no

information isprovided

on

the

homes

tobesold.

As

the

RTC

has struggledto

implement

the afford-ablehousing program,ithas

been

subjectedto adouble standard

-

one

based

on

the lenient

income

limits of

FIRREA

and

the other based

on

the potential that

housing advocatesseeforprovidingaffordable

homes.

Aftera year ofauctions, the

RTC

has lost

most

ofits

illusionsofbeingabletosell 1,000 properties a

month,

allat near-market prices.

By

the

same

token, the

pro-gram'sdetractorshave

become

more

realisticaboutthe

RTC's

capacity for doing good.

Soon

after the

North

Carolinaauction,

program

sponsor

Rep.

Barney

Frank

conceded,

"We

havegotto

compare

[the

program]

with

perfection

on

the

one hand and

nonexistence

on

the other."22

Notes

I

Special Memorandum. Washington, D.C.:

Low

Income Housing InformationService,February1991,p.10.

' FinancialInstitutions Reform, Recoveryand Enforcement Actof 1989,PublicLaw101-73, codifiedat12U.S.C. § 1441a.

3_{Id.,at§ 1441a(b)(3).}

"*

Newsday.December1, 1990,p5.

^Donohue,Gerry."TheInsideStory,"BuilderMagazine.March1991, p.133.

" "AffordableHousing Summaries."Washington, D.C.: Resolution

TrustCorporation.June-August1990.

'AffordableHousingSummaries. October-December,1990.

°TheResolutionTrustCorporationFundingActof 1991, PublicLaw

102-18,1005Stat.58.TheFunding Actactuallyamendedthe

Fed-eral

Home

Loan BankAct,just as

FIRREA

did. However,for

simplicity

FIRREA

istreated astheamendedlegislation.

"Fewof theWorking PoorGetHomesin

S&L

RescuePlan."

New

YorkTimes. June26,1991,Sec.A-l.

10_Affordable

HousingSummary.August1991.

II_{Reportby theTask Forceon the}

_RTC

_{tothe Subcommitteeon}

FinancialInstitutionsRegulation, Supervisionand Insuranceandto theCommitteeon Banking, FinanceandUrbanAffairs. March11, 1991,p.28.

l^Task Force Report,p.22. 13_{BNA'sBanking Report.(April}

1,1991)Vol.56,No.13,p.602. 14

Data providedinNovember1991 by theRTC'sMid-Atlantic

Con-solidated Office.Becausemanysuccessful bidderswere not

ulti-matelyabletopurchaseafterincomeorcreditdiscrepancieswere

discovered,itcanbeassumedthatmanysalesreportedbythe

RTC

eitherdidnot closeorarestillintheprocess of being closed. l^Wiles, O. Jesse. "RTC's affordable housing auctions provide a

solution to meet many needs."CommunityEnterprise. Atlanta:

Federal

Home

LoanBank(September 1991)Vol.2,No.3, p. 11.

^AffordableHousingSummary.June1991. 171

AffordableHousingSummary.June1991.

18

_RTC

data,note14.

^"CurrentDevelopments",Housing&DevelopmentReporter(August

19,1991),p.257.(reportingon testimonyof Paul Barru,Chairman

of the National Associationn of

Home

Builders'MortgageFinance

Committeebefore theTaskForceontheRTC);and Vandell and

Riddiough.'The Impactof

RTC

Dispositionson Local Housing

RealEstate Markets'',HousingPolicyDebate (1991)Vol.1,No.2, p.49.

20_{SilverLining.Washington,D.C.: ResolutionTrust Corporation.} (September/October 1991)Vol.1,No.1,p. 6.

21_The

_New

_{YorkTimes. June}

26,1991, Sec. A-l.

22_{SilverLining,}