RTC Auctions Seek The Small Investor

TODAY, the Resolution Trust Corporation, the agency charged with salvaging failed savings and loans and selling off their assets, begins one of its final auctions of nonperforming loans in Kansas City, Mo. But this time, look for a different buyer profile.

As a result of last year's lengthy congressional battle to win an additional $18.3 billion in RTC funding, Treasury Secretary Lloyd Bentsen (a member of the RTC oversight board) committed to expanding the sometimes unpopular agency's investment opportunities for small investors at auctions. Congress has criticized the RTC for shoddy management, lack of minority contracting, and bundling of loans into too-large packages.

As part of the RTC's ``Small Investor Program'' adopted last year, loan packages will be smaller at the two-day auction beginning today - an average of $1.8 million April 26; and $1.1 million April 27. The 6,226 loans also will be pooled in smaller geographical areas to facilitate easier management for buyers. Of the 225 packages, 37 are worth less than $500,000. The bidder entrance fee - a returnable deposit - has been lowered from $100,000 to $50,000 a day.

At the past three auctions, beginning in September 1992, nonperforming loans could be bought for a fraction of their book value. But large loan packages - an average of $2.2 million a package - favored large institutional investors over smaller investors, particularly women and minorities.

Last month, John Ryan, RTC deputy chief executive officer, testified before the RTC oversight committee that the agency also has expanded its direct-mail marketing list to include more women and minorities in its 4,000-entry small investor database.

Despite the RTC's ``Small Investor Program'' and a somewhat buyer-friendly sale, investing in nonperforming loans ``is not something a novice purchaser would want to get involved with,'' says Jane Jankowski, an RTC spokeswoman. Investors must have knowledge of foreclosure processes and know how to work with the borrower.

``[The auction] was normally an arena carved out for the big players,'' says Joel Zegart, president of Chicago-based JBS & Associates, which will conduct the auction. In the past, larger investors with more employees were able to monopolize loan documents in the weeks before an auction. Sometimes documents ``mysteriously'' were misplaced, Mr. Zegart says. Now, using computer-based ``imaging technology,'' as many as 175 reviewers can examine loans simultaneously.

Individual bidders are required to have a net worth of $1 million and an annual income of $200,000; businesses must have a net worth of $5 million. At past auctions, two-thirds of the loans were sold to bidders with more than $4 million in assets.

The return on these loans is expected to be similar to past returns of 50 to 60 cents on the dollar. But the return on property, such as 600 California real-estate loans, may be as much as 90 cents on the dollar, Ms. Jankowski says.

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