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• W18677114 abstract "AbstractThe sale of bank-owned real estate (REO, or Real Estate Owned) by the Resolution Trust Corporation (RTC) following the savings and loan crisis in the late 1980s presents lessons for sales of REO following the Great Recession of 2007 to 2009. This article examines the sales counts and recovery ratios by property type and by census division in the country for all REO properties sold by the RTC, which assumed control of failed institutions and liquidated assets during the period 1989 to 2005. Recovery ratios (asset sales prices divided by the gross loan balance at foreclosure) reached a nadir of 46 percent in 1990 and 1991. It then quickly stabilized to the mid-70-percent range. We find that sales of single-family residential, industrial, and retail properties enjoyed higher recovery ratios than sales of raw land and office buildings. Nearly one-half of the sales were in the West South Central census division of the United States. Although we are cautious about overstating the results, this study offers support for policies that promote more rapid liquidation of REO portfolios as a means of raising recovery ratios, thereby reducing losses from the sale of REO properties.IntroductionA persistent question during the recent economic crisis has been the appropriate pace at which to liquidate bank-owned real estate. Risks exist on both sides: rapid liquidation can force down real estate prices, but an overhang of unresolved properties can also hold down prices as potential buyers anticipate further increases in inventory coming onto the market.This article uses data from the earlier financial crisis and examines sales of bank-owned real estate (REO, or Real Estate Owned) by the Resolution Trust Corporation (RTC) after the savings and loan (S&L) crisis of the 1980s.1 Our data cover all sales of bank-owned real estate by the RTC, which assumed control of failed institutions and liquidated assets during the 1989-through-2005 period.These rich data enable us to examine sales counts and recovery ratios by year, by property type, and by U.S. Census Bureau divisions of the country.2 The data show that recovery ratios-which we define as the ratio of the sales price to the gross loan balance amount of the asset-reached a nadir of 46 percent in 1990 and 1991. Average recovery ratios quickly stabilized to the mid-70-percent range.Single-family residential, industrial, and retail property sales enjoyed higher recovery ratios than sales of undeveloped land and sales of office buildings. Nearly one-half of the sales were in the West South Central division of the United States. Although the absence of an appropriate counterfactual leaves us careful about drawing a strong conclusion, this case study does suggest that it is possible for recovery ratios to increase rapidly after a rapid liquidation of bank-owned real estate portfolios.The RTC sales experience generally is regarded as a successful response to dealing with the fallout from the S&L crisis (Wang and Peiser, 2007). William Seidman, chairman of the RTC, made early projections of losses on bad loans taken over by the RTC that were estimated at more than $200 billion, not including interest, which could run the bill up to $500 billion (Cope, 1990). The ultimate loss to the U.S. Treasury was $161 billion. Although the RTC in its early days received considerable criticism-with particular focus on charges that the RTC was selling assets too cheaply and too quickly-the evidence in this article suggests that recovery ratios on sales of REO properties recovered rapidly from the 1990-through-1991 nadir. The absence of an appropriately compelling counterfactual forces us to be somewhat humble concerning the strength of our conclusions about policy, but we think it is important to rigorously document the facts about this case study: rapid sales of real estate by the RTC were followed by an initial drop in sales prices in 1990 through 1991 and a rapid recovery as more capital came to the market. …" @default.
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• W18677114 date "2014-01-01" @default.
• W18677114 modified "2023-09-24" @default.
• W18677114 title "Recovery Ratios in the Savings and Loan Crisis: Evidence From the Resolution Trust Corporation's Sale of Bank-Owned Real Estate" @default.
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