Date: 1988-05-17
Speaker: ST GERMAIN (democrat)
Chamber: H

Mr. Speaker. Washington boondoggles have a life of their own and unless they are nipped in the bud they become part of the landscape forevermore. The Federal Asset Disposition Association [FADA] is at just such a crossroads. After 9 months of intense scrutiny which clearly identified FADA as a prime candidate for the boondoggle Hall of Fame. I wrote the Federal Home Loan Bank Board Chairman M. Danny Wall on May 3 asking that the Board take steps to voluntarily dissolve FADA. The letter. Mr. Speaker. reflected a growing consensus of Members of the Banking Committee who have followed the operations of FADA closely over the months. Now. we have the answer. Wrapped between layers of bureaucratic niceties the FHLBB says "no." It is not headline news that the FHLBB wants to keepor at least defend to its final hourthe creature it created nearly 3 years ago. Any other reaction would have shaken the bureaucratic world of Washington. With the FHLBBs answer in hand we in the Congress must get on with the job of straightening out the mess and establishing a rational costefficient approach to disposing of the $7.5 billion of assets acquired from failed and failing savings and loans. As long as the jerrybuilt structure of FADA is in place we wont have a rational approach to this critical task. Well continue to have inefficiency and waste. The structure. the mindset and the history of the agency renders makeshift repairs a very poor idea. In my letter of May 3 I told Federal Home Loan Bank Board Chairman Danny Wall: "The committee hopes that the Bank Board will voluntarily dissolve FADA. Please be advised. however. that the committee is fully prepared to enact legislation that would dissolve FADA with or without the acquiescence of the Bank Board. Legislation to accomplish that end is about to be introduced." Mr. Speaker. we will proceed on that course. In its defense of the indefensible. the FHLBB attempts to establish these points: The claim: That dissolving FADA would result in confusion. delays. and management disruption. The facts: The Federal Savings and Loan Insurance Corporation [FSLIC] already reviews all FADA business decisions. including sales. through a system of business plans and regional and national review committees. FSLIC staff have always remained knowledgeable of and have made the final decisions on the assets managed by FADA and are fully acquainted with the items moving through the pipeline. There would not be disruption. only the removal of a duplicate layer of bureaucracy. The claim: That dissolving FADA would cost millions of dollars because FADA is now profitable. The facts: Any apparent profits generated by FADA are the direct result of creative bookkeeping. First. FSLIC was directed to pay $6 million to FADA for contested expenses which the FSLIC receiverships had refused to pay. Second. the Bank Board orchestrated a new. more generous. contract which pays FADA a larger management fee and adds a disposition fee. Taking just one institutions portfoliothat of Vernon Savings and Loanthe new contract would pay FADA $16.9 million more than the old contract and $17.4 million more than if the assets were managed "in house." including all FADA staff now responsible for Vernons assets compensated at their current salary and benefits level. The claim: That additional costs would be incurred to manage the assets "in house" or directly through other private contractors. The facts: I cannot Imagine a scenario where removing FADA and handling assets "in house" or directly through private contractors could be more expensive than the current operations. FADA has managed few assets by itself. relying extensively on the use of subcontractors. While FADA accumulated an operating deficit of $15 million. it passed on more than $50 million in subcontractor costs to FSLIC receiverships. Since FSLIC already pays for all of the subcontractor bills. in addition to all of FADAs expenses. removing FADA could only result in savings. The claim:. That a study commissioned by FSLIC supports the Bank Boards contention that FADA provides better value than the private sector. The facts: This telephone survey received just 29 responses from 135 companies questioned. and many of the responses were qualified. This study is In direct conflict with data collected by committee staff which compares in great detail the cost structure of two large private contractors with FADA. The data used in this analysis was produced by the General Accounting Office. The claim: That FADAs fee is 72 basis points. including disposition fees. after factoring in the profits returned to FSLIC. The facts: FADAs new contract guarantees 90 basis points for asset management and related services and 150 basis points for disposition. In addition. FADA can still pass on certain subcontractor costs directly to FSLIC. The claim: That FADA has had significant staff reductions thus far in 1988 resulting in an annualized savings of $2 million. The facts: Unfortunately many of the individuals that have resigned from FADA are the very individuals who had real estate and workout expertise. which will be critically needed in the months ahead. The claim: With competition from FADA. the private sector will be forced to scale down its charges to the FSLIC. The facts: The committees data demonstrates that FSLIC is able to lower contractor costs through competitive bidding and obtain private sector services at a lower cost than FADA. Mr. Speaker. the response from the Bank Board does not lessen our resolve to assure the maximum recovery for the FSLIC Insurance fund. The committe will move forward on legislation which will abolish FADA and put FSLIC back on track In managing problem assets In a sensible and costefficient manner.