11/20/2009

FDIC Contracts Signal Asset-Sale Progress

The FDIC has hired at least three firms to help review or assign values to seized bank assets, including receivables it plans to securitize.

The contractors - including Clayton of Shelton, Conn.; RER Financial of Herndon, Va.; and Thompson, Cobb, Bazilio & Associates of Washington - are each charged with assessing a growing inventory of residential and commercial mortgage bonds and loans that the FDIC has been taking on from failed banks. A few other shops are believed to have won similar assignments.

In part, sources familiar with the FDIC believe the mandates mark an initial step toward carrying out an already-developing plan to unload some of the assets through securitization. The expectation is that the deposit insurer will start by selling bonds backed by home loans early next year, and then possibly move on to repackage mortgage securities into instruments resembling collateralized debt obligations.

Many of the loans and bonds would also be tabbed for so-called structured sales, in which the FDIC retains an interest in the underlying assets by forming partnerships with private-sector investors. The FDIC has already sold some non-performing loans, although the exact natures of those transactions are unclear.

Clayton, RER and Thompson each landed their assignments within the last couple of weeks, with an official at one of the firms describing his work as "due diligence and valuation services on assets for sale." The source said his mandate focuses on structured sales, but that the evaluations he and some of the other contractors are performing for the FDIC will help determine which assets would be best suited for securitizations.

An official at another of the firms said his team is assessing the way mortgages were written by analyzing the creditworthiness of borrowers and determining whether loan-underwriting practices complied with industry standards. Those tasks partly reflect the fact that many of the banks taken over by the FDIC have been small regional institutions whose underwriting standards remain cloudy. But that contractor won't decide what to do with the holdings, and other shops would handle valuation work.

The FDIC began planning the securitizations and loan sales early this year as an exit strategy for billions of dollars of assets that it had already taken on from failed banks amid the global financial crisis. The plans have gained urgency lately, as bank blowups have accelerated.

On average, more than 17 U.S. banks have been closing each month during the second half of this year, up from about seven per month during the first half. All told, the FDIC has taken 151 such institutions into receivership since the credit market imploded in mid-2007 - including 123 this year.

In recent months, the FDIC has been hiring hundreds of staffers in Irvine, Calif., and Jacksonville to work on its asset sales. The insurer is also expected to start interviewing prospective bond underwriters by yearend. Meanwhile, there's talk that some of its deals could involve non-mortgage consumer assets. Expectations are that the FDIC will guarantee the transactions, in a move harkening back to the government's disposal of commercial-mortgage assets inherited from failed savings-and-loan institutions in the 1990s.

Back Print