Resolution Trust Corporation:

Asset Purchase Option for Resolution of City Federal Savings Bank

GGD-93-77: Published: Apr 30, 1993. Publicly Released: Apr 30, 1993.

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Pursuant to a congressional request, GAO reviewed the Resolution Trust Corporation's (RTC) asset purchase option agreement to determine whether the selection and sale of assets complied with asset disposition statutory requirements, focusing on: (1) the City Federal Savings Bank resolution transaction and asset purchase option; and (2) RTC obligations and efforts to satisfy the requirements of the asset purchase option.

GAO found that: (1) RTC succeeded in resolving City Savings without an insured deposit payout and acted within its authority when it structured the terms and conditions of the asset purchase option; (2) although RTC acted within its authority and delivered $1 billion in assets to another thrift under a similar asset purchase option agreement, RTC was unable to provide the remaining $2 billion in assets as required by the option agreement without using an alternative underwriting arrangement; (3) RTC may have used questionable judgement in structuring the option's terms and conditions; (4) problems RTC experienced in fulfilling the asset purchase option included restrictive asset option requirements, a decrease in RTC residential mortgage inventory, and increased use of residential mortgage securitization; and (5) RTC planned to discontinue the use of asset purchase options due to problems in fulfilling the option's requirements.

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