Government Program Targets Residential Credit Solutions to Manage Toxic Loans

A new government program has been launched in hopes to assist solvent banks with ridding themselves of bad loans and helping federal officials handle an ever-growing portfolio of assets from seized banks.

The FDIC announced it has chosen Residential Credit Solutions, a Fort Worth-based mortgage servicing company, under the Legacy Loans Program, to take over $1.3 billion in residential mortgage loans held by the government agency.

The program is part of the $1 trillion Public-Private Investment Program that uses government money to fund public-private ventures.

The loans were originally owned by Houston-based Franklin Bank.

Residential Credit Solutions Inc., will then work to modify the distressed loans so that borrowers may keep their homes.

Residential Credit paid $64.2 million for a 50% equity stake in the new limited liability company.

The deal reflects wider efforts by the federal government to reshape financial-intervention strategies to meet changing needs.

The regulatory agency said it selected Residential Credit Solutions after determining its offer “would result in the greatest return for the receivership of all competing bids.”

In return for the Franklin portfolio, the company established as part of the deal that they will issue a government-backed note worth $727.8 million to the FDIC.

The FDIC said the current value of the bid represents 70.63 percent of the outstanding principal balance of the loan portfolio.

The agency will seek to sell the note to fixed-income buyers. Cash flow for the note will come from the loans in the portfolio.

The FDIC said the current value of the bid represents 70.63 percent of the outstanding principal balance of the loan portfolio.

Phil Ganz (354 Posts)

Philip D. Ganz is a Boston Mortgage Broker and Boston Home Loan specialist. For information, expertise, consulting, or advice about home loans, refinancing mortgages, or commercial property loans, contact Phil with no obligation: 617-529-9317


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