Public-Private Investment Program: Legacy Loans Program

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The Public-Private Investment Program: Legacy Loans Program

The PPIP-LLP is similar to the PPIP-LSP, but instead of asset-backed securities, it purchases whole real estate loans from banks. The program hasn’t been fully implemented, with only one pilot sale using a $64.2M match from Treasury and a $728M debt guarantee from FDIC for the assets from a bank seized by the FDIC.[1][2] The last statement issued by the FDIC on the program, on April 20, 2010, says FDIC has sold notes on a portion of the legacy loans in its pilot program.[3] The FDIC has not released further word on the program.

Wall Street Bailout Accounting
(back to main table)
PUBLIC-PRIVATE INVESTMENT PROGRAM: LEGACY LOANS PROGRAM
Balance Sheet
Disbursed*: FDIC: $728M[4]
Current outstanding: FDIC: $728M[4]
Public Funds
Maximum at-risk: Treasury: See PPIP-LSP
Current at-risk: FDIC: $728M[4]

* See the methodology and glossary for definitions of "disbursed," etc.

Funding agency and aid type

The funding agency was the Treasury Department and FDIC.

Matching money and loans to purchasers of toxic assets.

Who benefits

Holders of legacy loans, who receive a higher price than the market would otherwise give. In the pilot program this was a bank held by the FDIC, but it could be expanded to other, non-FDIC-held banks.

Background

SIGTARP:[5]

“FDIC launched a pilot Legacy Loans Program on July 31, 2009, with assets it had seized from bankrupt institutions. FDIC did not use TARP funds for this pilot program and is considering an expansion of this program without TARP funding.”

SIGTARP:[6]

“ As announced, the Legacy Loans Program was designed to purchase legacy loans — hard-to-value real estate-related loans — from financial institutions. In the Legacy Loans Program as originally announced, Treasury would form PPIFs with private investors and would match the private investment dollar-for-dollar (i.e., for every $1 invested by the private investor, Treasury would invest $1). FDIC would provide a debt guarantee of either a 4-to-1 or 6-to-1 leverage ratio (i.e., debt-to- equity ratio) on the pool of loans. The permissible amount of leverage would be predetermined by FDIC after an independent, third-party analysis of the loans. On July 31, 2009, FDIC launched the pilot sale of receivership assets, which did not use any TARP funds. Under the proposed funding mechanism, FDIC transferred a portfolio of residential mortgage loans it had seized through bank failures to a newly created limited liability company (the “LLC”) in exchange for a partial ownership interest in the LLC. FDIC then conducted a sale of an equity stake in the LLC.”

Treasury:

“In order to cleanse bank balance sheets of distressed loans and other assets, the FDIC and Treasury have announced the Legacy Loans Program. The Legacy Loans Program will be designed to attract private capital to purchase eligible assets from participating banks. Combining public and private sector equity capital and an FDIC debt guarantee, public-private investment fund asset purchases should boost private demand for distressed assets that are currently held by banks and facilitate market-priced sales of troubled assets.

Notes

Articles and resources

Related SourceWatch articles

References

  1. SIGTARP October 2009 report, p. 43.
  2. "Legacy Loans Program – Test of Funding Mechanism" (press release), FDIC, July 31, 2009.
  3. "FDIC Closes on Two Note Offerings Backed by Loans and Real Estate from Corus Bank and Franklin Bank, S.S.B," (press release), FDIC, April 20, 2010.
  4. 4.0 4.1 4.2 Congressional Research service reports that the bid was financed with a $728 million debt guarantee: “As of the end of 2009, Treasury reports no TARP funds committed or disbursed under this program. On September 30, 2009, the FDIC held a pilot Legacy Loan sale, auctioning a portfolio of residential mortgages with unpaid principal of $1.3 billion from a bank that the FDIC had taken into receivership. Residential Credit Solutions placed a winning bid of $64 million to receive a 50% stake in this pool, and will finance the purchase with $728 million of debt guaranteed by the FDIC.” Baird Webel, Marc Labonte, “Government Interventions in Response to Financial Turmoil,” Congressional Research Service, Feb. 1, 2010, available at http://www.fas.org/sgp/crs/misc/R41073.pdf, accessed Mar. 15, 2010. See also Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), “Quarterly Report to Congress October 21, 2009,” [1] p. 85.
  5. SIGTARP October 2009 report, p. 43.
  6. SIGTARP Oct. 2009 report, p. 84.

External resources

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