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Doing business with the RTC.

These three initials - RTC - mean different things to different people. Members of Congress associate the RTC with upwards of $42 billion in taxpayer funds for the savings and loan cleanup. The person on the street may confuse them with a new musical group and the opinions of members of the real estate finance industry vary.

The industry views range from seeing it as just another ineffectual bureaucratic governmental entity, to a sense that, "considering the volatility and magnitude of the task, the RTC is an agency motivated to handle the largest peaceful transfer of property in history. It is an arduous and complex task." That latter sentiment belongs to Thomas F. Wratten, CMB, chair of the RTC Commercial Task Force formed by the Mortgage Bankers Association of America.

The Resolution Trust Corporation was created by the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) to dispose of the assets of failed thrifts using the expertise of private industry. The assets in RTC's disposition stockpile include residential mortgages, consumer loans, raw land and commercial mortgages, to name only a few. With regard to commercial mortgages, the commercial real estate finance community and, specifically, the mortgage banking industry, has lent a helping hand with the disposition of these assets.

Just how successful has this partnership been? How long has it taken to get the partnership working and are there pitfalls to doing business with the RTC? What changes should be changed to improve the process of working in partnership with the RTC?

Four members of the newly formed MBA RTC Commercial Task Force were asked these questions. Their responses reflect a growing understanding by the commercial MBA membership of how to work with such a vast government entity and make it worthwhile. Interviewed for this forum were: Paul A. Edberg, vice president, Draper & Kramer, Inc., Chicago; Michael A. Hyman, senior vice president, Wendover Funding, Inc., Greensboro, North Carolina; Paul S. Klick, III senior vice president, Equitable Real Estate Investment Management, Inc., Atlanta; and Thomas F. Wratten, CMB, chairman of the executive committee, MDS Loan Services, Inc., Overland Park, Kansas.

Each of these firms does some type of current business with the RTC, so they share a first-hand perspective on what it's like. Chicago-based Draper & Kramer is an RTC-registered contractor that holds a contract to perform commercial servicing for RTC's eastern region, provides asset strategy advisor support to the agency and does performance reviews for RTC property management contracts. Wendover Funding is a RTC-registered contractor that holds RTC contracts to service residential loans in the eastern and western region for the RTC, and does commercial loan servicing in the eastern region, as well as some consumer loan servicing in the RTC's eastern region. Equitable Real Estate Investment Management holds contracts to provide either master servicer and/or special servicer functions on several RTC securitized offerings and holds one full-service RTC contract. Finally, MDS Loan Services is a commercial servicer that holds a current contract to be the North Central Region Commercial Servicer for the RTC and holds RTC contracts to service the REMIC offerings M-1 and M-3 and provide other data processing assignments for the RTC.

Q: When and why did your firm decide to pursue opportunities with the RTC?

EDBERG: During the latter part of 1990, like most mortgage bankers, we saw the downturn of the economy, and the real estate deals drying up and Draper & Kramer, Inc., (D&K) had to find a niche in the marketplace to see if there were some opportunities to make some money in the 1990s.

HYMAN: Wendover Funding, Inc., [as a company] is a loan outsource specialist. Since our inception, we have specialized in subservicing activities. We evaluated [RTC's] S.O.S. [Solicitation of Services] and noted that their requirements were much like what we were doing with our regular business. In addition, it was easy to integrate the RTC product into our operation once we recognized and prepared for the additional paperwork that the more transient RTC loans required. Again, why did we pursue it? Because we could, and saw an opportunity without a major interruption to on-going business.

KLICK: We started researching what our role could be with the RTC well over two years ago. Equitable recognized the huge problem that the bailout of the S&L [insurance fund] would [produce] if the major national players, such as ourselves, did not get involved. We realized that if people like us didn't play, the problem wouldn't be solved very quickly. Also, we recognized [there was] the potential [that] good fees could be made, therefore, the potential income was also a plus.

WRATTEN: It was viewed as an opportunity by our parent company (Midland Data Systems). We assumed that there were services that we could [perform]. Also, the size of the task was bigger than the size of the organizations [trying to perform] the task. We believed that we could do it and we are doing it everyday.

Q: What was the length of time that transpired between becoming a RTC registered contractor and receiving a winning bid?

EDBERG: Completing the application to initially register to become an RTC contractor was a fiasco. We had to refile and, in hindsight, I recently reviewed what someone else in the office had filed in the initial registration and there were a number of holes that we should have filled in. Since then, basically I am charged with the control of RTC projects within Draper & Kramer, Inc. The S.O.S. contracts come to me and are passed out to appropriate individuals within D&K for comments. If it is determined that we should go forward with the bidding process, [then] appropriate staff, whether residential or commercial, will complete the paperwork.

Getting to know the people in the RTC, especially here in Chicago, was where our first contact was made and from that we were able to get our first interim contract from the Chicago consolidated office.

We interviewed in the first part of January 1991 and were awarded a short interim contract for servicing performing and non-performing commercial loans. The portfolio covered the spectrum of commercial loans including consumer, auto, credit card with an average loan size of $175,000 to $200,000 from a failed institution in Chicago. As part of that contract we dealt with three SAMDA (Standard Asset Management Disposition Agreement) contractors who held the non-performing loans. The interim 6-month contract provided for one 6-month renewal, because MDS had won the whole contract after we received ours for the whole Midwest and after one year, they were redelegated to MDS in Kansas.

HYMAN: We began this adventure in the spring of 1990 when we registered as a contractor with the RTC. An S.O.S. was sent out that summer and by fall we were awarded our first contract to service one-to-four family residential loans from the eastern region.

KLICK: Our first contract was awarded in July 1991. Since July 1991, we have been awarded numerous contracts. Our major role has been with the securitization effort where we have been named master and special servicers. We were awarded the contracts on the first multifamily and commercial securitizations. In addition, we are a full service contractor of performing and non-performing loans from the RTC's Denver office.

WRATTEN: Our parent company was involved with researching opportunities with the RTC from day one. As a subsidiary of Midland Data Systems, we designed ourselves as a full-service, commercial, mortgage servicing entity first to accommodate the RTC and [we] anticipate that in the future, we will be able to assist other institutional investors [in handling] large volume and in-depth servicing functions.

Q: How many RTC contracts do you have to date?

EDBERG: Since our first contract, we have bid on several, being selected on one out of five bids on the servicing side. However, we have three other contracts within the company. One we recently acquired is for the RTC SWAT team of commercial underwriters. The SWAT team is composed of a business person, the RTC legal and RTC representative to work on problem loans. We were just one of the companies that was picked for this team. The process for selection is similar to bidding for a servicing contract. The other two contracts cover managing an office building in Florida where we retained the property management [duties] after the initial contract ended and the third contract is to review all property management contracts that have been let by the RTC. We are now looking for opportunities on the residential side, particularly residential securitization.

HYMAN: We have won three out of four bids. [We believe this is] because we have carefully identified and selected to bid on specific [Solicitations of Services]. We currently are direct servicer for 25,000 - consumer, residential and commercial - RTC loans, which represents roughly $1.2 billion. We are master servicers on another 28,000 residential loans. These figures do not [include] the number of [loans] that we have interim serviced.

WRATTEN: To date, [MDS Loan Services] has eight commercial contracts, primarily data processing and SAMDAs (Standard Asset Management Disposition Agreements). However, as of the end of May 1992, MDS has processed 11,769 commercial mortgage loans. If you add the REMICs that number could easily be 15,000 loans.

Q: What changes has your firm had to make to accommodate your contract?

EDBERG: Someone asked me, "Do you treat RTC any differently than AEtna?" My answer is no. The same quality of work that we do for AEtna or any other of our investors, [is what] we do for the RTC. For our first interim servicing contract, we had 225 loans and added 2 people. We are trying to keep it one person per one hundred loans. Now, our RTC portfolio is up to 2,900 loans, with 25 staff [we] have yet to complete our full staff compliment. The background composition of the staff varies. The senior people, those at officer level, have a solid background in commercial servicing and/or accounting. The senior administrators have probably one to four years of experience and the junior staff members generally have less than one year of experience and are coming right out of college with a degree in finance. Communication and computer skills are very important. There is a considerable amount of [borrower] contact, so they have to have good communication skills both on the phone and [in] writing.

HYMAN: Because in many cases the loans are in and out of our shop very quickly, Wendover has created a "deconversion department" to handle processing, accounting, reconciliations and other administrative paperwork. In addition, the accelerated securitization schedule has caused us to establish "due diligence support capability." Additional space was leased for a dedicated room with separate keyed entry, a vault and trained personnel.

KLICK: At Equitable, we use the portfolio management approach for all asset management clients. We have developed an asset management group specifically for the RTC and added new people in the servicing and asset management area. In addition, we have created a wholly owned subsidiary called EQ Services to service not only for the RTC, but for all of Equitable's servicing.

WRATTEN: Again, we had to create ourselves from a concept of what was, or would be, needed for commercial real estate servicing in the short- and long-run. Now, we have an in-house staff of approximately 220, with a network of 43 commercial mortgage banking firms nationwide that can answer problem/crisis calls within 24 hours.

Q: What has been your experience with the borrowers?

EDBERG: They are probably, in most cases, very frustrated. They've lost their contact with their local institution and now they are [dealing] with someone in Chicago. A lot of the problems we've had [revolve around] getting the information from the institutions to load the files to be able to contact the borrower. Borrowers have been told that we are the servicer and [yet] we don't even have the files, nor do we know who they are.

HYMAN: Conversions of 5,000 loans generally mean 5,000 phone calls verifying your existence and receipt of funds. Generally, most borrowers are cognizant of the RTC realities and thus, we develop a good business relationship for the short time these loans are in our portfolio.

WRATTEN: We've had no complaints. Generally they are glad we are here. We represent someone they [seek out] to get answers.

Q: Will you briefly describe the caliber of people and the expertise of the staff you have come into contact with at the RTC?

EDBERG: On the bidding process, initially, maybe we didn't ask enough questions or [know] who to ask. On some deals we thought we were competitive and found we weren't even close. Getting to know some of the people involved was a tremendous help to us. Part of the key is getting to know your oversight manager. There is a tremendous amount of political pressure [being brought] to bear on all sides. These people [at the RTC] are made, at times, to jump through hoops, probably pretty demanding [ones], sometimes unreasonable. This is when you sometimes [have to] stop and catch your breath and ask what's what with these people. Generally, they are willing to give you direct responses. Two of my oversight managers have good backgrounds in commercial real estate.

HYMAN: Overall we've had an excellent relationship [with the RTC staff]. Most are business people who understand the realities of what is needed to get the job done. We have had many great [RTC] oversight managers who have taken the time to meet with us to observe and [who] now appreciate how Wendover works. From contracts to oversight generally speaking [we have] good [working] relationships.

KLICK: We have been primarily involved with the securitization, bulk sales and transaction people [at RTC]. They are high quality, dedicated individuals, not your typical bureaucrat. They want to get the job done as efficiently and effectively as possible. They represent a good mixture of experience. Some are former FDIC personnel, while others have substantial private industry background.

WRATTEN: They are not bureaucrats by any means. They are people with practical industry experience trying to get the job done within the framework of the RTC. They are action-oriented and the most responsible and accountable federal government employees I have come across.

Q: Are there contracting opportunities still available with the RTC?

EDBERG: The biggest opportunity is [in] securitization. For firms that want to get on board, securitization is an annuity for the mortgage banker. It probably can be aligned to the investor portfolio as anything else. Basically the RTC is out of it [once the transaction is completed and then] you are dealing with individual investors, which is nothing more than dealing with GNMA investors. You've got the portfolio, you're managing the portfolio, and as long as the loans stay in that securitization until they're paid off, there is your annuity. The way we've done business before with the RTC is still there, but probably will be short lived.

HYMAN: Yes. Definitely on the servicing side. Even with the securitization effort, a lot of loans won't be securitized. Additionally, the RTC is still taking over groups of institutions on an almost weekly basis, thus increasing the available loan product that will require even interim servicing. Not to mention, the more specialized construction loans or leasehold loans that require particular [kinds of] servicing. Individuals with these unique capabilities should come forward to the RTC and be [considered] for these niche possibilities.

WRATTEN: There is no doubt about this. Only $2.5 billion in commercial has been securitized [since the end of May]. Of course, there is much left to be done before the RTC's sunset date of 1996 and the commercial real estate finance professional, especially the mortgage banker, possesses much of the local talent necessary to fill the void.

Q: If you were Albert Casey running the RTC, what improvements would you initiate?

EDBERG: Number one is communication. We at D&K have received numerous calls from key securitization players (i.e., Wall Street underwriters, RTC staff etc.) on the same question asking for the same information in a little different way, within the same half hour. We realize that securitization is the newest programmatic buzz-word - the big program. But there is a need to inform in detail [as to the details about] this is what we want to do, this is how we put it together and spell out the plan in some detail to all RTC staff, contractors and so forth. [Another] improvement, which I realize they cannot make, is [having a] willingness to take some risk on some loans. They cannot act as business people in the pure sense, because they have Congress looking over their shoulder. I understand that, but it does slow the process down. Obviously, the political risks of doing this [taking risks on some loans] are greater. So, [if I were Casey, I would try to] improve the communication and coordination between the contractor, consolidated offices and the national headquarters.

HYMAN: I would make certain that adequate incentives stay in place to keep the good people on the job until it is done. l'm not necessarily speaking of financial incentives. But with the closing of field [offices] and [the] consolidation [of] offices, the increased turnover increases the potential of losing professional quality people, [and brings with it] the heightened potential for operational problems. Secondly, the communication network can be confusing, with different levels of authority and philosophies between the various offices.

KLICK: I would streamline the process from [the point that] a program idea/concept [is conceived and then] brought forward to [the] issuance of an S.O.S. and ultimately the letting of the contract.

WRATTEN: He's [Casey] done a pretty good job if you put into perspective the magnitude of the task. I have no suggestion. I've seen him be decisive and motivate the organization.

Q: Knowing what you know now, would you do business with the RTC if you had it all to do over again?

EDBERG: In a heartbeat, I wouldn't blink an eyelash. It's been fun, enjoyable and a new challenge. For myself, I have really never dealt with the government or the bureaucracy, as such. We have had to deal with a few Fannie Mae and Freddie Mac loans, but those are nothing compared to what we have to deal with now, with the various levels of people. I have found the vast majority of RTC people to be very professional, very helpful in trying to do a job that is very difficult for them. I think no matter what the press has said about them, I think they have done a yeoman's task in the three years that they have been around. There is a complete change of direction and policy from their early days. And the faster they can get the product out to the private sector, the better off they are going to be.

HYMAN: Yes. As we originally surmised, we were already doing the type of business, which is needed. We have been afforded a growth opportunity [through the RTC] that wouldn't necessarily have been available [otherwise]. We've had exposure to different types of loans and investors. In fact, several investors have bought the RTC asset that we serviced and decided to keep [the asset] with us.

KLICK: Yes, although government work can be frustrating, our involvement with the RTC makes good business sense.

WRATTEN: Yes, without question. Good people have been displaced from [the thrift crisis] fallout and we have had the good fortune to employ quality staff. They are the finest I've been associated with. It's been a rewarding opportunity with a chance to learn.

Lynn M. Harvey is associate director in the Commercial Real Estate Finance Department at the Mortgage Bankers Association of America, Washington, D.C.
COPYRIGHT 1992 Mortgage Bankers Association of America
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Title Annotation:United States. Resolution Trust Corp.
Author:Harvey, Lynn M.
Publication:Mortgage Banking
Date:Jul 1, 1992
Previous Article:Fundamentals of commercial securitization.
Next Article:Seeing the forest and the trees.

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