Resolution Trust Corporation:

Better Data Could Improve Effectiveness of Nonperforming Loan Auctions

GGD-95-1: Published: Nov 14, 1994. Publicly Released: Nov 14, 1994.

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GAO reviewed the Resolution Trust Corporation's (RTC) August 1993 national nonperforming loan auction, focusing on the: (1) process RTC used to select loans for the auction; and (2) adequacy and usefulness of loan data provided to investors before the auction.

GAO found that: (1) RTC efforts to select and dispose of nonperforming loans was hindered by incomplete and outdated loan data; (2) RTC identified over 60,000 nonperforming loans with a total book value of about #2.7 billion for the auction; (3) RTC failed to follow its contracting procedures in modifying loan servicers' contracts to require the submission of monthly standard loan data; (4) the RTC central loan database contained incomplete and outdated data because some loan servicers did not timely submit all relevant data; (5) RTC withdrew about 81 percent of the original 60,000-plus loans selected for auction because they did not meet auction criteria, were in litigation, had been paid off, sold, or designated for other sales; (6) some performing loans were erroneously included in the auction and sold at deep discounts; (7) investors generally believed that RTC loan data was useful, but important data were missing, inadequate, or invalid; (8) some investors lowered their bids or did not participate in the auction because of poor RTC loan data; and (9) RTC has taken actions to correct identified problems in conducting auctions of nonperforming loans.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: RTC has developed four new Standard Loan Servicing Agreements which include the requirement for monthly tape submissions to the Central Loan Database. Previously existing loan servicing contracts have been consolidated under new contracts using these standard agreements. The standardized documents require servicers to support RTC's loan marketing activities. Additionally, the Loan Servicer Oversight Checklist used by RTC has been revised to include compliance with these two requirements. During the semi-annual visitation made by RTC's field personnel review the servicer's procedures to ensure they are complying with the reporting requirements.

    Recommendation: To improve the quality of the data in the RTC central loan database and the data provided to investors to market the loans being offered for sale, the Deputy and Acting Chief Executive Officer, RTC, should ensure that all loan servicing contracts require loan servicers to submit monthly loan status updates of data needed for marketing purposes to the central loan database contractor.

    Agency Affected: Resolution Trust Corporation

  2. Status: Closed - Implemented

    Comments: RTC expanded statements of work for due diligence contractors to provide exception reports that better identify loan file deficiencies. Quality control measures were implemented at field offices. When loan servicers supply incomplete data, they are contacted to determine if the data exist or can be updated. The loan data diskettes were condensed to only 35 data fields and missing data are now the exception. Although errors and bad information still occur, RTC states that complaints from investors have been drastically reduced. Actions were taken to eliminate duplicate copies of appraisals and other non-essential information from files before they are imaged; this reduced investor complaints about slow response times. RTC offers access to loan level trial balance information, through an online computer network; these efforts resulted in higher recovery rates on three national auctions and an increase in registered and successful bidders.

    Recommendation: To improve the quality of the data in the RTC central loan database and the data provided to investors to market the loans being offered for sale, the Deputy and Acting Chief Executive Officer, RTC, should ensure that information provided to investors on loan data diskettes or in imaged loan files is valid, complete, well documented, and in a format that meets investors' needs.

    Agency Affected: Resolution Trust Corporation

 

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