I heard yesterday that, the last time the RTC was used was the S&L crisis. The govt took on something like 20 billion in bad debt and was able to sell off all but 3 billion, which the taxpayer had to swallow.
The RTC was supposed to be used for two years then dissolve, it had to be extended two times and ended up having an seven year lifespan because they could not sell the debt as fast as anticipated.
Just speculation but, I think this situation will be the same. The gov. will take on the bad debt, try to sell it, when markets won’t bear the risk they will resort to work w/ homeowners, then eventually foreclose and pass losses on to the taxpayer.
I guess my next two questions are:
1. At what point does the govt decide it’s prudent to lower the loan amount (or will they?), and what is the upper threshold of % write down before just foreclosing?
2. What does the govt do with a bunch of foreclosed/empty houses? Send them to REDC, HUD, or…?
