FDIC Sells Failed Bank's Toxic Loans To Private Investor

WASHINGTON - The Federal Deposit Insurance Corp. on Wednesday named the first winning bidder under a test of the government's program to back private purchases of toxic mortgage assets and get them off banks' balance sheets.

Fort Worth, Texas-based Residential Credit Solutions Inc. is paying $64.2 million for a 50 percent stake in a new company that will have about $1.3 billion in home mortgages from the failed Franklin Bank.

The FDIC took over Houston-based Franklin Bank in November. Under the test sale to RCS, the new company will issue a note for $727.8 million to the FDIC. Twelve groups of companies had bid on the assets, the agency said.

The program is part of the government's public-private partnership to guarantee private investors' purchases of toxic assets to help banks raise new capital, get credit flowing and aid the economic recovery.

The sale is part of the government's so-called Public-Private Investment Program, announced in March by the FDIC, Treasury Department and Federal Reserve as one of the financial recovery measures. The backing for the private investors' purchases is coming from the $700 billion federal bailout fund, with the government matching private investors dollar for dollar and sharing any profits equally.

The FDIC said it will analyze the results of the RCS-Franklin Bank sale to determine whether the same process could be used to get toxic assets off the balance sheets of banks that are still open and functioning, as opposed to failed banks.

Officials have said that the PPIP will aim to relieve banks of up to $40 billion worth of soured investments tied to mortgages.

The FDIC pilot sale involved actual mortgage loans rather than the related securities.

The closing of the RCS sale is expected later this month, the FDIC said, after which the company will manage the portfolio and service the loans under guidelines for modifying distressed mortgages.

RCS is a large mortgage servicing company that deals in modifications for troubled home borrowers. The company had no immediate comment Wednesday afternoon.

Comments

[Businespoli]

Everyday we, the people, get ripped off by those we put in office..and this cycle continues year after year

good articles 4 slow news day: http://www.iamned.com

[hellboundtrain]

The mostly complicit Congress could care less about the constituents;
their satisfaction (and paydays) comes from being toadies
to the money masters.

[CaptainHowdy2]

CAUTION: Monetary System Collapse

http://www.youtube.com/watch?v=m1VbGcaVvFM

[salkoc]

how is THIS costing tax payers ? you had a company review mortgages that they felt was worth the risk ....they purchased it at 70 cents on the dollar ..........no different then buying a bond in the market .

from what i hear they actuallt went through all 9000 mortgages. this now sets a market for these assets. the solvent banks will start using this to gt even better capital in. banks win .

to your second point ....too big to fail . i agree 100% . these super banks should be broken up asap.

bac should be a mortgage company , investment company , and just a pure bank .

goldman is having a field day .........operates as a inv bank with money it borrows from the fed at 0 %.

[grateful4thedead]

this will cost taxpayers a fortune.

by the way, our banking system is no better than one year ago.....possibly worse. in my view, definitely worse.

until we recognize the truth, get it out there, and develop a plan to reduce the too big too fail banks, we cannot go forward with our economy.

you'll see.