RTC Faulted for Not Helping Poor Buy Homes : S&L; Bailout: Agency handling sale of seized S&L; assets criticized for not offering discounts on houses and condos.

WASHINGTON —  Federal savings and loan liquidators are launching a program that could be a once-in-a-lifetime chance for low-income families in many states to realize the dream of home ownership--but housing advocates warn that flaws in the program could turn it into a broken promise.

Thousands of moderately priced houses and apartments acquired by the federal Resolution Trust Corp. when it takes over assets of failed S&Ls; must, by law, be set aside so that lower-income families, nonprofit community groups and state or local housing agencies get the first chance to buy them, ahead of investors and higher-income home buyers.

But the RTC’s refusal so far to offer discount prices on the properties, combined with a shortage of mortgage money for low-income buyers, could shut out many of the people Congress hoped to help when it enacted the bailout law, say housing officials and advocacy groups.

“The RTC isn’t conforming to the spirit of the law,” according to Maude Hurd, president of ACORN, a community activist group that led protest demonstrations at RTC regional offices around the country several days ago to demand price cuts and financing aid on RTC houses.

However, the low-income housing program is also fundamentally at odds with the broader mandates of the S&L; bailout: to clean up the mess as quickly as possible and minimize the losses that will have to be paid by U.S. taxpayers.

“We understand the enormous problem that RTC is facing,” said Richard West, an official of the Low Income Housing Coalition in Washington.

“They’re walking a tightrope between trying to carry out the low-income housing program and, at the same time, the Congress and the U.S. public have a gun to their head to sell this stuff” without further losses to the taxpayers.

“There are a lot of competing interests in the legislation,” said Steven Katsanos, communications director for the RTC. “The law says we’re supposed to be selling property at market value, and we’re supposed to reduce the overall cost (of the bailout).”

The conflict between housing advocates and government officials isn’t as intense in California as it is in most other states.

That’s because the RTC has control of just 351 houses, condominiums and apartments in the state--compared to the whopping 14,328 housing units it has inherited from failed thrifts in Texas, or the thousands of other homes that it controls in other parts of the nation.

According to provisions inserted by Congress into the S&L; bailout law, single-family houses or condominium units acquired by the RTC and valued at $67,500 or less must be offered first to low-income families, nonprofit groups or state and local government housing agencies. Such groups also get first chance to buy the RTC’s low-priced apartment projects.

Nearly 10,000 homes have been identified as eligible for the program so far, with more expected as the bailout continues. A test program to sell 100 houses began in February and, under interim rules issued a week ago, the RTC authorized the sale of 1,000 properties, with low-income families or nonprofit groups given a 90-day “right of first refusal.” (For apartment projects, nonprofit or public agencies get an extra 45 days.)

If a sale is not concluded within that period, wealthier people or investors may buy the properties.

“RTC looks at this ‘first look’ period as a subsidy in itself, a position with which we do not agree,” said Barbara N. Thompson, director of government affairs for the National Council of State Housing Agencies.

Housing advocacy groups argue that the bailout law would permit the RTC to discount the sale prices and give mortgage aid to low-income buyers.

But the RTC Oversight Board has voted 2-1 against such steps, with Secretary of Housing and Urban Development Jack F. Kemp supporting such aid but Secretary of the Treasury Nicholas Brady and Federal Reserve Chairman Alan Greenspan opposed to it.

Discount prices or mortgage subsidies may be the only way that some families can get a home, especially in depressed areas such as Texas, Louisiana, Colorado and Oklahoma--where most of the RTC houses are located.

Texas officials estimate that 3 million families earn less than $25,000 a year in that state, and most of them would be too poor to buy many of the RTC houses, which sell for as much as $67,500, without state or federal subsidies.

The Texas Housing Agency recently agreed to set aside its entire $140-million tax-exempt mortgage bond program to help poor families buy RTC houses. Such state agencies pay bond buyers a lower-than-usual interest rate because the interest is exempt from income taxes, and in turn, the state is able to offer cut-rate loans to home buyers.

And under a new accord with the RTC, the federal agency will contribute up to $2.8 million to help cut borrowing costs for home buyers using the state program, according to Tish Gonzalez, executive administrator of the Texas agency.

An estimated 3,500 families will get low-interest loans and will only have to make 3% down payments, Gonzalez said, and some families with incomes as low as $16,000 a year will be eligible to participate. “We’re hitting a whole new class of home buyer,” she said, but the money will not stretch far enough to help buyers of all of the estimated 4,900 low-income RTC houses in Texas.

Texas is unique in that the state agency had not issued bonds in a long time because of the state’s real estate slump, she said, and thus it could clear the decks for an all-out effort to help RTC home buyers.

Such housing bond programs are limited, under state bond ceilings as well as federal tax rules, in the amount of tax-exempt mortgage bonds they may issue.

Unlike Texas, many other states have low-income housing projects standing in line to obtain subsidized loans, and the agencies could not exceed their bond ceilings to help people buy the newly available RTC houses, said Thompson, of the Council of State Housing Agencies.

The RTC is watching the test sales program carefully, said agency spokesman Katsanos, and will review what, if any, incentives are needed to make the program work.

“Financing from the RTC or possible loan guarantees might be what it’s going to take to return some of these assets to the private sector,” he said.

But advocacy groups must realize, he added, that the RTC “is not in the position to give 30-year, below-market-rate loans” because the RTC is supposed to be a short-lived operation that cleans up the savings and loan mess and then puts itself out of business.

Los Angeles Times-Washington Post News Service