Obligations Limitation:

Resolution Trust Corporation's Compliance as of March 31, 1990

AFMD-90-101: Published: Jul 27, 1990. Publicly Released: Aug 29, 1990.

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Pursuant to a congressional request, GAO reviewed the quarterly report on the Resolution Trust Corporation's (RTC) compliance with the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), to determine whether: (1) RTC included all the required categories in its calculations; and (2) the values reported appeared reasonable for select components of the calculations.

GAO found that: (1) none of the categories for the formula required by FIRREA were omitted; (2) the failure to reasonably estimate the fair market value of assets could result in overstated future RTC obligations; (3) noncompliance with RTC policy concerning advances made to conservatorships could impact the return on asset recoveries, thereby increasing resolution costs; (4) giving representations and warranties to the secondary market and contracting services with the private sector, if adopted, may affect additional obligations; and (5) RTC needs to establish the basis for measuring associated costs so that future quarterly reports are accurate and informative.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Resolution Trust Corporation Refinancing, Restructuring, and Improvement Act of 1991 (P.L. 102-33) requires RTC to quarterly report to the House and Senate Banking Committees assets sales information for the preceeding quarter. The Committees did not request a comparison of actual and estimated sales prices, and RTC plans to capture this information for only a sample of its assets.

    Recommendation: The RTC Executive Director should take the necessary actions to ensure that future RTC quarterly reports to the Chairman, House Committee on Banking, Finance and Urban Affairs, disclose actual results on asset sales in comparison with estimates.

    Agency Affected: Resolution Trust Corporation

  2. Status: Closed - Implemented

    Comments: RTC has implemented certain procedural and reporting changes to enhance internal controls over advances to conservatorships. The new policies and procedures provide clear guidance regarding required documentation. In addition, RTC has reassigned responsibility for maintaining headquarters file documentation, and determined that the cost of perfecting secured claims far outweighs the risk of loss.

    Recommendation: The RTC Executive Director should take the necessary actions to ensure that RTC policies and guidelines on advances to conservatorships are clarified and followed.

    Agency Affected: Resolution Trust Corporation

  3. Status: Closed - Implemented

    Comments: RTC has implemented a national database to track warranties and representatives and has established an administrator in each region to monitor activity. As of December 31, 1990, RTC made representations and warranties on nearly $10 billion of loans and servicing rights for which it has reserved about $42 million to cover related contingent liabilities.

    Recommendation: The RTC Executive Director should take the necessary actions to ensure that, if representations and warranties are given in connection with the sale of asset-backed receivables and mortgage service rights, an appropriate estimate of the resulting contingent liabilities be made and reflected in the RTC obligation limitation calculation.

    Agency Affected: Resolution Trust Corporation

 

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