Resolution Trust Corporation

Under agreements entered into by failed thrifts, the Resolution Trust Corporation (RTC) relies on thousands of commercial banks, thrifts, and mortgage companies to help service its inventory of mortgages and loans. In December 1991, these institutions--known as inherited third-party servicers--serviced more than 300,000 mortgages and loans, which is more than one-third of RTC's total inventory of mortgages and loans held by thrifts in receivership. These servicers are to collect and remit to RTC millions of dollars in principal and interest payments each month. GAO concludes that the lack of oversight of inherited servicers could jeopardize RTC's recovery of asset values by decreasing loan collections and reducing the market value of loan portfolios. Also, without evaluating servicer performance, RTC cannot identify and take action against servicers that are not performing satisfactorily.

GAO found that: (1) RTC does not adequately oversee its inherited loan servicers, who service $7.5 billion in RTC mortgages and loans; (2) RTC does not have the necessary policies and procedures in place to monitor the servicers' loan collection activities; (3) RTC cannot ensure that servicers are accurately accounting for and remitting loan payments, or if its servicers are sound financial institutions that are able to maintain the value and marketability of RTC mortgages and loans; (4) some of the servicers do not meet reasonable loan standards; (5) in September 1991, the Federal National Mortgage Association considered 84 of 298 institutions servicing loans in Florida ineligible to service RTC mortgages; and (6) RTC is planning to address those issues, but its progress has been slow.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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