The Federal Deposit Insurance Corp. has announced its first deal under a government-backed program to get toxic assets off the books of banks and other financial companies.
The FDIC chose Residential Credit Solutions Inc. (RCS) to invest in a pool of home loans from Franklin Bank, which was taken over by regulators in November.
The loans have an unpaid principal balance of roughly $1.3 billion, but because of the current housing woes, they are worth far less.
The Treasury Department said earlier this year that it would make money available from the $700 billion Troubled Asset Relief Program to help finance the purchase of mortgages and mortgage-backed securities, which it euphemistically refers to as "legacy assets.''
RCS, based in Fort Worth, Texas, agreed to pay $64.2 million for a 50 percent stake in a public-private partnership that will hold the Franklin Bank loans. Its proposal called for a leverage ratio of 6-to-1.
RCS and the FDIC will each own a 50 percent interest in the public-private partnership, which will be structured as a limited liability corporation and will be managed by RCS. The partnership will in turn issue a note to the FDIC in the amount of $727.8 million.
The FDIC said the present value of its deal translates to 70.6 percent of the outstanding principal of the loan portfolio.
RCS was among 12 bidders for the assets. RCS is a mortgage investment and servicing company founded in December 2006. Its investors include Equifin Capital Partners, a private equity group, and Och-Ziff Capital Management Group.
Its chief executive is Dennis Stowe, who previously was president of Saxon Mortgage Inc., a subprime lender.
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