WASHINGTON / CATHERINE COLLINS : RTC Policy Unfair to Poor, Suit Claims

The Resolution Trust Corp. will sell 71 high-priced commercial properties Nov. 15 in an auction that will be broadcast live via satellite from Dallas to nine cities nationwide and overseas to London and Tokyo.

More than $300 million worth of property will be on the block: 31 retail strip centers, 28 office buildings, six hotels, three warehouses and an apartment complex with health club and golf course.

And the RTC’s floor price for each property will be 70% of appraised value.

But the RTC’s inventory of property from failed savings and loans isn’t all so high-priced. The agency is about to come into ownership of about 18,000 low-income residential properties nationwide. And, as more thrifts go under, the RTC, which was created to oversee the bailout, will own more affordable properties.

The RTC will market these properties through designated clearinghouses at their appraised market value. It will not offer price discounts for low-income properties. Nor will it offer discount financing.

And that is the crux of an argument that has been stirring for months between the RTC and affordable-housing advocates across the country.

“Why should the poor and disadvantaged members of society be called upon to pay undiscounted, artificially inflated prices for affordable housing when major investors are being offered discounted prices?” asked Tish Gonzales, executive administrator of the Texas Housing Agency at a congressional hearing in June.

“This stuff is simply not ‘affordable’ for many low- and moderate-income buyers without some sort of discount,” said Steve Kest, executive director of the Assn. of Community Organizations for Reform Now (ACORN).

The dispute reached a new level last week when ACORN sued the RTC, charging that it is not in compliance with its own affordable-housing provisions.

“We hope to force the RTC into putting the affordable-housing program into place, to make it a reality,” said Steve Bachmann, an attorney for ACORN in Detroit.

“The RTC has done nothing about appointing ACORN or other organizations as clearinghouses. The clearinghouses are the first step to making the properties available.”

To make its point, ACORN has staged demonstrations, which it calls “squats,” across the country, in which eligible families move into vacant RTC properties.

After a “squat” in Chicago last month, four members were jailed. That particular house was later sold to investors, said ACORN. In fact, last week’s lawsuit was announced at another house seized by ACORN activists.

A spokesman for the RTC said that the “chanting and protesting is not getting us anywhere” and that ACORN is welcome to serve as a clearinghouse. ACORN, however, said the RTC’s own regulations say an organization cannot volunteer to be a clearinghouse, but must be approached first by the agency.

“They made the regulations that say in black and white that they have to come to us,” Bachmann said. “It isn’t like we’re hiding under a rock.”

In addition, Bachmann charged that the RTC has disposed of eligible properties without following procedures. “We are having a hard time even assessing if they are keeping records,” he said.

When it was set up last year, the RTC was assigned two basic and apparently conflicting missions by the Financial Institutions Reform, Recovery and Enforcement Act, known as FIRREA.

While the RTC is charged with minimizing the taxpayers’ cost for the savings and loan bailout, it also must create home ownership and rental opportunities for low- and moderate-income households.

“In the broadest sense it is a conflict in the sense that we can’t be giving away property when we are here to minimize losses to taxpayers,” said Diane Casey, vice president of public affairs at the RTC’s Oversight Board. “But the taxpayers are entitled also to some benefit from the program. It is a delicate balance.”

Under the bailout legislation, certain properties are to be reserved for low- and moderate-income buyers. When the final rules are published in two weeks, Casey said, the RTC will begin to sell those properties.

To qualify for the affordable program, a property’s maximum value must be set at $67,500 for a single-family home, $76,000 for a duplex, $92,000 for a triplex, and $107,000 for a four-plex. The maximum value for larger multifamily complexes varies from $29,500 for an efficiency apartment to $58,392 for a four-bedroom unit.

Qualified buyers must intend to occupy the property as a principal residence and their annual income must not exceed 115% of the median income.

The properties will be sold at the appraised market value. However, after four months the price may be dropped 15%, and after another three months, there can be an additional 5% markdown. The price cannot be dropped more than 20% without a new appraisal.

“We are looking for the fair market value; we are not here to give the properties away,” Casey said. “These properties are eminently affordable.”

Indeed, a report by the RTC Oversight Board stresses that the policy for determining market value is not a subsidy.

On the basis of a 100-unit test program, Casey said the average price in the affordable program is $36,000.

“If you use standard underwriting criteria, you can assume that someone making $16,000 a year can afford to buy a home. That’s someone making 45% of that national median income. These properties are definitely targeted to low-income buyers.”

Instead of discounting prices or financing, the RTC says it is trying to provide affordable housing by making its properties available to qualified individuals, families, nonprofit organizations and public agencies through an exclusive, 90-day marketing period.

But ACORN disputes the effectiveness of that practice because under FIRREA the only eligible properties are those that the RTC holds in “receivership.” In other words, the RTC must hold clear title to the property. Properties held only in “conservatorship” are not eligible because the RTC is still trying to save the financial institution that holds the property and the agency does not own the assets yet.

Stephen Allen, director of the RTC’s low-income housing program, recently told Congress that only 700 properties nationwide are in receivership and eligible for the program.

“We are concerned that the good properties will never again make it to market for low- and moderate-income buyers,” Kest said.

During a hearing a month ago in Texas, where the savings and loan crisis has been worst, representatives of several housing groups complained about the lack of adequate information on the RTC inventory. Gonzales showed slides of dozens of properties that the RTC claimed were unoccupied and habitable; more than half were occupied and others needed major repairs.

The RTC is facing serious criticism in Congress. “It has been an area of disappointment,” said Joseph C. Lewis, a staff member of the House Banking Committee.

“Our perspective is that if you are going to begin providing discounts for some properties, but you say you won’t do the same for low-income housing, you really aren’t dealing equitably,” said Kirsten Johnson, on the staff of Rep. Bruce Vento (D-Minn.), who is on a task force overseeing the RTC.

Even the National Assn. of Realtors has expressed discontent with the RTC’s handling of the program. “The program exists mostly in name only,” said Stephen Driesler, NAR’s senior vice president for government affairs.

FIRREA’s own regulations allow the RTC to use both discount pricing and financing for the low-income program, but the RTC has chosen not to do so as a matter of policy, Casey said.

ACORN has vowed to get the RTC to change the policy, even if it means trying to take advantage of the worry among congressmen that voters are blaming them for the S&L; crisis.

“It wouldn’t surprise me if the political leverage is on our side for this one,” Kest said. “A lot of members of Congress will be looking for fig leaves, and helping to promote social good with RTC housing is such a fig leaf.”

Housing groups say that some good can come from the savings and loan crisis.

“Here is an unprecedented window of opportunity,” Gonzales said, “which if implemented efficiently and with sensitivity, will provide housing for the people who need it the most and have previously been excluded from this market.”