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approximately $1 million in fiscal year 1993 and $1.2 million in fiscal year 1994.

The funding legislation for each fiscal year has allowed the FDIC to modify the affordable housing program in a manner that best uses available funds. This was particularly important during the first two years of appropriations because the funding levels were much less than required to run the full program mandated by statute. The modified program, implemented in fiscal year 1993, comports with the statutory program in most respects. The primary difference is that the program will undertake multifamily sales only if additional funds are available beyond what is necessary to run the single-family program. Because of the higher costs involved with multifamily sales, the FDIC is able to reduce significantly the administrative and loss expenses associated with the program by conducting only a limited multifamily program.

During fiscal year 1993, the FDIC was able to conduct only one significant multifamily sale: a 200 unit singleroom-occupancy project in Oakland, California. During fiscal year 1994, however, the FDIC allocated $2 million of its $7 million appropriation to multifamily sales. As a result, the FDIC sold or donated 10 multifamily properties to non-profit Six of these transactions were recently closed and the rest are expected to close during the next three months. The fiscal year 1994 multifamily program was undertaken in partnership with the RTC so the FDIC could take advantage of the RTC's experience in conducting such sales.

groups.

Pursuant to the RTC Completion Act, which was signed into law in December 1993, the FDIC will be merging its program with the RTC's Affordable Housing Disposition Program. The affordable housing functions will be merged by October 1, 1995, so that the FDIC can more fully employ the staff resources and economies of scale attributable to the RTC's larger and more established program. During 1994, the FDIC and the RTC have made a great deal of progress in unifying the activities of the agencies' affordable housing programs. Specific accomplishments

include:

joint marketing of single-family properties through auctions and other sales methods;

the development of a joint income certification form used by both agencies;

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joint marketing and oversight of multifamily sales.

These measures have allowed for increased administrative efficiency and serve to minimize the administrative costs associated with the program. Such measures will also allow for a smooth transition as the two programs are formally merged during the spring and summer of 1995.

Although the FDIC Affordable Housing Program has been a successful, cost-effective mechanism for increasing home ownership for low- and moderate-income individuals, the inventory of properties available for the program is declining rapidly. The improved health of the banking industry means that fewer banks are failing and the FDIC is inheriting far fewer assets than when the program began. Any amount beyond $15 million in fiscal year 1996 is not supportable given the FDIC's projected inventory.

Mr. Chairman, this concludes my prepared statement. I would be happy to respond to any questions that you may have.

APPROPRIATIONS ASSUMPTIONS

Mr. LEWIS. Thank you very much, Ms. Helfer.

First, I just want to mention to yourself and those in the audience, that this hearing will address questions that relate to our appropriations responsibility. We don't intend any side shows relative to other problems that exist in the general FDIC community or specific FDIC institutions. In the meantime, I know some of the pressures that have existed in connection with that and that will go forward in another venue rather than here.

We are pleased relative to the pattern of requests for appropriated funds, but I would like to now have you discuss with us the specific assumptions that would have to change in order for there to be an fiscal year 1996 appropriations or need to that. What assumptions would have to change?

Ms. HELFER. Well, I think we are actually comfortable with respect to the FRF, which is the principal issue here. With respect to the FRF, we are comfortable with the fact that we understand what the outside liabilities are. We know what the remaining assets are and what is necessary to resolve them. We have identified in written testimony some litigation on which there has recently been a decision, unfortunately, contrary to the interests of the FDIC, which we can cover the judgment on. There will be another piece of litigation. It relates to the Congress' decision in FIRREA to eliminate goodwill for savings and loans, which was a judgment of the Congress.

It was done pursuant to a Justice Department legal opinion that said that this was not a taking under the Fifth Amendment to the Constitution. Unfortunately, a court has recently ruled that it was. There was a $6 million judgment against the FRF, even though, of course, the FDIC was not at all involved, either in the congressional judgment to take away the goodwill or in any of the issues associated with the Justice Department's conclusions.

We hope to be able to actually obtain reimbursement for that $6 million from the Judgment Fund of the United States because, in fact, it is a judgment against an action of the United States rather than the FRF.

There are three other suits outstanding.

"GOODWILL" COURT DECISION

Mr. LEWIS. So the court essentially said that "Blue Sky" should be a part of consideration as a possible taking of property.

Ms. HELFER. Yes. It essentially said that in deciding to eliminate the ability of thrifts to take account of goodwill for financial purposes, they had taken away a value to the corporations in contravention of the Fifth Amendment.

JUDGMENT FUND

Mr. LEWIS. And there are monies in this Judgment Fund. Ms. HELFER. Well, the Judgment Fund is the fund which is administered by the Justice Department subject to determinations by the head of GAO as to certifying what is appropriate for the Judgment Fund. It is the subject of a continuous appropriation.

There are some 50 cases outstanding on this issue. We don't know what the ultimate liability will be because not all of them have claimed specific funds.

Most of the cases are against the United States, not the FRF. Four of the cases are against the FRF. One as to which there has been a recent judgment is for $6 million. Another as to which there is a case on appeal is valued at about $26 million, which is also against the FRF.

If those are the only judgments, then we believe we probably can cover them under the existing multiyear appropriation. However, the head of GAO, the Comptroller has the authority to certify that the payment should come in future cases, not from the Judgment Fund, but from the FRF. We don't think there is a basis for that, but that is a contingency that we wanted to alert the committee to.

As to our other assumptions with respect to the FRF, we have tried to look at what the ongoing obligations are, what our ability is to deal with any outstanding issues. There are 900 cases in litigation outstanding related to those old FSLIC assistance agreements. At least 10 of them involve contingent liabilities. When the FSLIC negotiated the agreements, it agreed, for reasons I can't understand, to provide 10 years of indemnification on potential litigation.

In 10 of the agreements, that 10 years doesn't run until 1998. So there is potential liability—and any case filed up until the conclusion of those agreements would be the liability of the FRF. So we have had our lawyers make a judgment about the potential value of that litigation and we have taken that into account for purposes of evaluating the $827 million number.

Now, if our judgment about the value of the litigation is wrong, and in years subsequent there is litigation that produces higher recoveries, we could be back to you, but we hope not.

PROJECTIONS

Mr. LEWIS. If the last election had not been different, I wouldn't have this seat. My crystal ball didn't predict that at all. Your people have a better crystal ball.

Ms. HELFER. We hope so but, unfortunately, I will give you an example of where we were wrong in a good direction. The Bank Insurance Fund we predicted at one point three years ago would recapitalize in the year 2002. It will recapitalize sometime at midyear in 1995. So I wish I could say that our projections were always perfect.

Mr. LEWIS. The ball runs both ways.

Ms. HELFER. Yes. With respect to the SAIF, as I have indicated, we don't project a need to ask for any appropriations. We have about $1.8 billion in the SAIF. Our estimates of the failure rate, based on current assumptions about troubled institutions, indicate that existing SAIF resources are sufficient to cover those costs. Generally our recovery rate from failed assets is about 85 percent of our insurance outlay. So the 15 percent differential essentially are the costs to the fund. We, however, will not have had to pay for the cost of resolving thrift failures out of the SAIF until July first of this year.

Therefore, I am somewhat concerned because the SAIF is well undercapitalized. Congress as I indicated, mandated a level of capitalization of about $8.6 billion based on the current level of insured deposits. So for that reason, I bring that to your attention. We don't project, however, thrift failures in the next few years that are likely to be a problem. However, if there were an economic downturn, if there were problems in a very large individual institution, and those are sometimes quite unpredictable they depend on the quality of management decisions, they depend on the level of the capital cushion and they depend on other factors, particularly economic factors, and usually in specific regions of the countrythen there could be a problem. So I want to bring that to your attention, the certifications which would allow us access to the $8 billion appropriated for this purpose and to the remaining funds from the RTC are onerous certifications. They essentially require us to say that there is no other way to obtain funding through raising assessments to SAIF members and that without those assessments, there will be losses in excess of those that can be borne by the fund.

VALUE OF RTC ASSETS

Mr. LEWIS. Let me proceed with a couple of other items, and then I will yield to Mr. Stokes.

The RTC currently estimates there will be $8 billion to $10 billion of assets remaining in liquidation at the RTC's termination in December. What portion of those assets do you estimate will be recoverable?

Ms. HELFER. Well, unfortunately, the RTC tells us that they are giving us the worst assets that they had in their portfolio.

Mr. LEWIS. I am surprised at that.

Ms. HELFER. I think they made a very genuine effort to get rid of all that they can, but one has to assume that the ones remaining at the end of year will not be the ones that were easy to sell.

As I say, our-since 1987, our average recovery rate has been about 85 percent. I doubt if we think we will get that level.

John Bovenzi is the Director of Division of Depositor and Assets Services.

Mr. BOVENZI. I would guess you might get 40 cents on the dollar, on average, or something like that, for what is left. But we don't have an exact number. But my expectation, where it is going to be the poorer-quality assets, that that number, $8 to $10 billion, is a original book value of what the loan was and it is going to be worth far less than that.

Mr. LEWIS. Far less than that. But that, nonetheless, says that there will be a remainder sum.

Mr. BOVENZI. There could certainly be recoveries, yes.

Ms. HELFER. And what we are doing right now, RTC has an outside firm doing an audit of all of its remaining assets of which I think there are about $25 billion. They are doing a market valuation of all the assets right now.

At the conclusion of that, which they hope to conclude sometime later this month, our finance people, Steve Seelig has been working with them, will go over those valuations, will work with the RTC people on which of the remaining assets are likely to be the ones