In its efforts to push private investors buy distressed mortgages from troubled banks, the Federal Deposit Insurance Corporation (FDIC) yesterday announced that a deal with Residential Credit Solutions to sell $1.3 billion in mortgages from Franklin Bank, a Houston-based lender that failed last November.
It was the first deal reached under an Obama administration's Legacy Loans Programme (LLP), which is part of the $1-trillion Public-Private Investment Programme aimed at helping solvent banks get rid of bad loans, clean up their balance sheets and get credit flowing again.
Despite FDIC providing generous subsidies, LLP has had trouble getting off the ground as banks were reluctant to sell their troubled mortgages at discounted prices.
The pilot sale was conducted on a competitive bid basis, and final bids were received on 31 August 2009. A total of 12 consortiums bid to purchase an ownership interest in a limited liability company (LLC).
Under the deal, the FDIC will create a joint venture with Residential Credit Solutions of Fort Worth, a three-year-old company founded by Dennis Stowe, a veteran of the subprime mortgage industry.
Residential Credit will put up $64 million of its own money to obtain a 50-per cent stake in the venture, which will hold and manage the $1.3 billion pool of mortgages from Franklin Bank.