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Mon May 21, 2012
The FDIC announced last week that it is seeking public comment on its Legacy Loans Program (LLP). The FDIC and the Department of the Treasury 
unveiled the LLP last Monday as part of the administration’s Public-Private Investment Program (PPIP).
The program is intended to boost private demand for distressed assets that are currently held by banks and facilitate market-priced sales of troubled mortgage assets. According to the FDIC, a structured program for removing these loans from banks’ books is necessary because uncertainty about the value of such assets makes it difficult for banks to raise capital and secure stable funding to support lending to households and businesses.
The LLP will combine an FDIC guarantee of debt financing with equity capital from the private sector and the Treasury. The partnerships will purchase assets from banks and place them into what will be known as Public-Private Investment Funds (PPIF).
Institutions of all sizes will be eligible to participate in the LLP to sell assets. Government officials say they expect a range of investors to participate, including individuals, mutual funds, pension plans, insurance companies, and other long-term institutional investors. Investors will be pre-qualified by the FDIC to participate in auctions of the legacy assets.
For providing a guarantee, the FDIC will be paid a fee, a portion of which will be allocated to the agency’s Deposit Insurance Fund. The FDIC said it will be protected against losses by the equity in the pool, the newly established value of the pool’s assets, and the fees collected.
The FDIC will play an ongoing reporting, oversight, and accounting role under the program. In addition, the FDIC will structure the debt that the selling bank will take back when the legacy loans are sold. Participant banks may then resell the debt into the market.
The FDIC is seeking public comment from interested parties on the critical aspects of the LLP. Comments are requested no later than April 10. For more details on the program and to review and submit comments click here.
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