Legacy Loans Program Stretches Its Legs

After postponing the Legacy Loans Program (LLP) in June, the Federal Deposit Insurance Corp. (FDIC) commenced its first test this week. Regulators designed the LLP to help banks cleanse their balance sheets of troubled — or so-called “legacy” — loans in order to raise capital and open pipelines to lending, but HousingWire reported in June that the FDIC put the testing on hold because of the banks’ ability to raise capital without having to sell bad assets through the LLP. The move fueled existing questions concerning whether the LLP should be deactivated entirely. The FDIC’s action this week may erase that doubt. In the transaction offered, the receivership will transfer a portfolio of residential mortgage loans on a servicing released basis to a limited liability company (LLC) in exchange for ownership interest in the LLC, according to a release from the FDIC. An accredited investor will buy an equity interest from the LLC and will manage the portfolio of mortgage loans, conforming to the servicing guidelines of the Home Affordable Modification Program (HAMP) or the FDIC’s loan modification program. According to the release, the FDIC will then analyze the results of the sale to see how the LLP can clear more troubled assets and kick-start lending. The FDIC could not offer any details on the size of the portfolio offered, and a spokesperson told HousingWire interested investors must agree to certain disclosures before participating in the blind bidding process. Write to Jon Prior.