D. Affordable Housing Program FY 1996 APPROPRIATIONS REQUEST The FDIC's Affordable Housing Program received $7 million in appropriated funds in FY1994. These funds were used to provide subsidy assistance to qualified buyers and to reimburse administrative expenses of the program. While the program previously focused its efforts on single-family properties during FY1993, the scope was expanded in FY1994 and FY1995 to include multifamily properties. While the FDIC does not request appropriated funds for this program, we have been supportive of past Congressional efforts to benefit low- and moderate-income households in our asset liquidation efforts. For FY1995, appropriated funds of $15 million were approved for use in the FDIC's Affordable Housing Program. In preparation of our annual filing with the Office of Management and Budget, we were told to anticipate appropriations of $15 million to continue the program into FY1996. Each of the topics discussed above are presented in further detail within the body of the request. Additionally, supporting schedules are included to further highlight historical efforts and future goals. A. Mission Statement FY 1996 APPROPRIATIONS REQUEST Congress created the FDIC in response to the severe financial crisis of the Great Depression. Since the establishment of the FDIC, Congress has passed numerous laws designed to help the FDIC and other regulatory agencies sustain stability and public confidence in the nation's depository institutions and financial system. In spite of sweeping legislative changes and changes in the financial institutions industry, the basic mission of the FDIC has remained the same. Mission Statement The FDIC's mission is to maintain public confidence in the nation's depository institutions by: Protecting depositors' accounts; Promoting sound banking practices; Reducing the disruptions caused by bank and thrift failures; and B. Legislative Framework and Program Operations The FDIC manages three funds: the Bank Insurance Fund (BIF), the Savings Association Insurance Fund (SAIF), and the FSLIC Resolution Fund (FRF). Funds may not be co-mingled among the BIF, SAIF and FRF. The BIF and the SAIF are funded by assessments on the deposits held by insured banks and savings associations, respectively. This request for appropriated funds deals only with the FRF and the FDIC's Affordable Housing Program. Congress, through the House and Senate Banking Committees, provides oversight of the FDIC and the activities of its three funds. Two particularly significant pieces of legislation dramatically affect the FRF: the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) and the Resolution Trust Corporation Completion Act (RTCCA) of 1993. FIRREA primarily addressed the thrift industry crisis, but also made fundamental changes to the way banks and savings associations are supervised and insured. Several provisions of FIRREA affected the FDIC activities in resolving failed institutions. Among these were the following: Creation of the FRF and FDIC's appointment as its manager; FY 1996 APPROPRIATIONS REQUEST Creation of the SAIF; and Creation of the RTC. The RTCCA provided funding for the RTC to complete the liquidation of failed thrifts. Certain aspects of this legislation affect the activities of the FDIC included in this appropriation request: Authorizes an $8 billion appropriation for the SAIF, subject to certain specific certifications, to be used to cover insurance losses dealing with the capacity of the industry to support higher assessment payments. The authorization runs through 1998. Extends the conservatorship and receivership authority of the RTC to July 1, 1995. This authority was previously scheduled to expire on October 1, 1993. Makes certain changes to the FDIC Affordable Housing Program. Primarily, it requires the FDIC and the RTC to unify their programs into a single joint affordable housing program. Accelerates the RTC termination date to December 31, 1995. Upon termination of the RTC, all assets and obligations of the RTC will transfer to the FRF. At that time, the primary focus of the FRF will cease being the late stages of liquidating the assets and obligations assumed in 1989 from the former FSLIC. Instead, the focus of the FRF will be the liquidation of the remaining assets and obligations of the RTC. A. Overview of the FSLIC Resolution Fund FY 1996 APPROPRIATIONS REQUEST The FRF is responsible for winding up the affairs of the former FSLIC and the RTC after its sunset on December 31, 1995. The FRF is funded from the following sources, to the extent funds are needed, in this order: 1) income earned on, and proceeds from the disposition of, the FRF corporate assets; 2) liquidating dividends, and payments made on claims, received by the FRF from receiverships of failed savings associations; and 3) through December 31, 1992, a portion of insurance premiums paid by SAIF members. If these sources are insufficient to satisfy the liabilities of the FRF, payments are made from the U.S. Treasury in amounts necessary, as appropriated by the Congress, to carry out the purpose of the FRF. Through passage in 1994 of H.R. 4624 the VA, HUD Appropriations Bill, the FRF was provided $827 million in appropriations which will be available until expended. At the sunset of the RTC in December 1995, the FRF will receive the remaining assets and obligations of the RTC. The FRF will continue to exist until all of its assets are sold, or otherwise liquidated, and all of its liabilities are satisfied. Upon the dissolution of the FRF, any funds remaining will be paid to the U.S. Treasury. Currently, the largest use of the FRF funds continues to be the payment of assistance to operating thrifts under the terms of contractual agreements established by the former FSLIC. The last of the open assistance agreements is scheduled to terminate in December 1998. It is anticipated that the $827 million appropriation will be sufficient to meet the needs of the FRF through the termination of the existing assistance agreements. B. Management of the FRF Assistance Agreements The management of the FRF assistance agreements is performed by staff of the Assisted Acquisitions Section (FRF Section) located within the Operations and Agreement Management Branch of the FDIC's Division of Resolutions (DOR) in both Washington, D.C. and the Dallas Regional Office. The FRF Section's activities include the day-to-day administration of the assistance agreements; the review and processing of claims for reimbursement under the terms of the assistance agreements; the monitoring, assessment and collection of tax benefits due the FRF under the terms of the assistance agreements; and the resolution of outstanding obligations and issues existing at the contractual termination of the assistance agreements. FY 1996 APPROPRIATIONS REQUEST The Washington, D.C. headquarters staff provides guidance for administering assistance agreements and other national issues related to these agreements; coordinates the negotiation of disputed issues and early termination efforts; reviews submissions where approval authority exceeds authority delegated to the regional office; develops and disseminates policies and procedures for the administration of the assistance agreements; develops requests for the FRF funding and the FRF Section budgeting; develops and prepares management reports on the FRF Section's activities; and performs other headquarters office operations relative to obligations under these agreements. The FRF Tax Unit staff, located in Washington, D.C., ensures that the tax benefits due to the FRF from the assisted institutions are properly calculated, collected and recorded; reviews draft and final compliance audits conducted by the Assistance Agreements Audit Branch, in the FDIC's Office of the Inspector General (OIG) with respect to tax matters; terminates and distributes the remaining pension plans related to the FRF assisted acquisitions; acts as liaison to the Internal Revenue Service and performs analyses of the tax implications to the FRF of actions taken with respect to assisted institutions. During 1994, approximately $135 million in tax benefits were realized by the FRF and all but one of the pension plans were terminated. Case Management and Claims Management functions are performed by staff located in the Dallas Regional Office of DOR. The staff ensures compliance by the assisted institutions with the terms of the agreements; encourages the timely and orderly disposition of covered assets, which includes the review and approval of institution requests concerning the management and ultimate disposition of covered assets and related litigation matters, assessment of marketing efforts and the reasonableness of associated legal costs; performs loss reserve projections; reviews and approves reports required by assistance agreements (e.g., quarterly accounting claims for reimbursement, appraisals, write downs, covered asset sale requests, etc.); clarifies differences in interpretation of the agreements; and reviews compliance audits conducted by the FDIC's OIG as they pertain to assistance provided under the terms of the agreements. The Special Actions/Terminations staff's (located in Washington, D.C.) functions are similar to those of Case Management staff, but are focused on resolving outstanding liabilities which survive the contractual termination date of these agreements, particularly litigation and compliance audit matters. At September 30, 1994, the FRF Section was administering a total of 103 assistance agreements, of which: 13 were open, 53 were terminated according to their contractual terms, but require resolution of outstanding issues (i.e. final compliance audits or litigation matters) and 37 were assigned to the FRF Tax Unit for monitoring of the tax benefits due the FRF which survive until they are used or expire, and could extend 15 years or longer after an agreement's contractual |