FDIC Tests First Legacy Sale

The Federal Deposit Insurance Corp. is conducting its first legacy loan sale, which gives investors access to affordable financing to purchase a 50% stake in a pool of residential mortgages. Investors paying cash can take an 80% equity position in the pool of receivership assets and manage the mortgages, which are being sold on a servicing released basis. Investors seeking government financing can take a 50% equity position and split any profits with the FDIC. Financing is being offered with leverage of 6-1 or 4-1 depending on certain elections. FDIC is conducting the first sale using $1 billion in assets from the failed Franklin Bank in Houston, according to a report in the American Banker. FDIC is hoping this test of the Legacy Loans Program will lead to sales of bad assets by operating banks. "This step will allow FDIC to be ready to offer the LLP to open banks as needed," the agency said.