Resolution Trust Corporation

GAO reviewed the Resolution Trust Corporation's (RTC) efforts to sell performing assets to acquirers of failed thrifts under the minority preference resolutions program. GAO found that RTC has established a reasonable process anchored to agency and mortgage securities markets standards. This process allowed for the independent valuation of 1- to 4-family residential mortgage loans that were offered for sale to minority acquirers. RTC contracted with two independent valuation contractors, experienced in mortgage securities markets, t provide separate prices for each loan, which RTC then averaged and offered to the minority acquirer as the final price. By removing itself from the initial phase of the loan pricing process, RTC showed its commitment to establishing a process that was fair to minority acquirers but that, at the same time, sought to maximize total return on the disposition of assets as required by law. Under this program, 11 of the 14 minorities who bought thrifts from RTC purchased 4,063 1- to 4-family residential mortgage loans. Moreover, to price the loans, the two valuation contractors appeared to have used a reasonable methodology that took into account fluctuations in interest rates, credit risk sensitivity, and the fact that these were RTC loans. Further, officials at Fannie Mae and Freddie Mac found this pricing methodology to be generally consistent with their approaches.

GAO found that: (1) RTC established a reasonable process for the independent valuation of residential mortgage loans that were offered for sale to minority acquirers; (2) RTC contracted out the initial phase of the loan pricing process to be fair to minority acquirers while maximizing the total return on asset disposition; (3) 11 of the 14 minorities who bought thrifts from RTC under the Minority Preference Resolutions Program purchased 4,063 residential mortgage loans during FY 1995 for $289.6 million; (4) the two valuation contractors priced mortgage loans using a methodology that considered adjustments in interest rates, credit risk, and was consistent with Freddie Mac's and Fannie Mae's pricing methodology; and (5) RTC did not adopt the loan pricing methodology proposed by minority acquirers who believed the mortgage loans were over priced, since it believed the existing methodology established a fair market value for the loans.