Concerns Surface For FDIC's Legacy Loan Program

BY JIM FREER
Special Correspondent

The Federal Deposit Insurance Corp. has set next month as the target date to launch its program where banks will sell pools of problem loans to partnerships of private investors and the U.S. Department of the Treasury.

The regulators hope that participating banks will be able to put more focus on lending, including money from loan sales, and spend less time and expense managing delinquent loans.

However, information from banking and real estate sources indicates that the long-awaited Legacy Loan Program might not get off to a fast start.

Some bankers are concerned that prices for many delinquent loans sold in the program might be lower than the discounted prices at which they are carrying them on their books.

Interest in the program appears stronger from investors, such as large institutional funds and Florida-based real estate developers, than from banks that have delinquent loans.

Several, most notably Wells Fargo predecessor Wachovia Corp., were active earlier this decade in making loans for building and renovating condominium projects in South Florida and other markets.

The chance for investors to put as little as seven percent down on some loans with partial FDIC guarantees is a main attraction, said Nina Gordon, a partner in the Boca Raton office of law firm Broad & Cassel.

“They think they could have access to some treasures buried in vaults,” Gordon said.

Those “treasures” would be loans for now-troubled condominium conversions or construction of condo complexes and apartment buildings that could become viable projects after the economy recovers.

Numerous banks with offices in South Florida have loans on those properties that are 90 days or more delinquent. Many have been restructuring loans by cutting monthly payments or interest rates. They have had hopes, now fading, that borrowers can catch up on payments and avoid foreclosures.

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Jim Freer is a special correspondent for CondoVultures.com. He is a veteran banking reporter and a consultant to the finance industry in South Florida.