RCS Buys 40% Stake in $898m of Distressed Mortgages from FDIC

The Federal Deposit Insurance Corp. (FDIC) sold a 40% equity interest in $898m of non-performing residential mortgages originated by failed AmTrust Bank. As receiver of the failed bank that originated the loans, the FDIC will convey the mortgages — 96% of which are delinquent — into a limited liability company (LLC) created to hold the assets, according to a press release. Residential Credit Solutions (RCS), CarVal Investors and RBS Financial Products formed the three-party consortium that bought the structured transaction for 37% of the unpaid principal balance of the pool. Of the collateral securing the loans in the portfolio, 37% are located in Florida, 11% are in California and an additional 5% are located in each of Arizona, Nevada and Massachusetts. The RCS-led consortium submitted the winner of five competing bids the FDIC received on either a 40% leveraged ownership interest or a 40% unleveraged ownership interest in the newly-formed LLC. The FDIC retains a 60% stake in the LLC and shares in the assets’ returns. The FDIC offered 1:1 leverage financing and agreed to guaranty purchase money notes issued by the LLC in the original principal amount of $169.5m. As the managing member of the consortium, RCS will manage, service and ultimately see to the disposition of the loans. RCS will pursue appropriate workout solutions including the Home Affordable Modification Program (HAMP) on eligible loans within the portfolio, the FDIC said. AmTrust failed and was taken over by regulators on Dec. 4, 2009. The FDIC, as receiver, entered into a purchase and assumption agreement with Westbury, New York-based New York Community Bank, which assumed all $8bn of AmTrust’s deposits and $9bn of the its $12bn in assets. “This transaction completes the sale of the majority of the remaining assets of AmTrust Bank,” the FDIC said today. The FDIC in early January confirmed plans to sell sell rights to a mortgage-servicing portfolio of nearly 100,000 AmTrust loans by Q210. The FDIC soon hired Milestone Merchant Partners to handle the sale of a $20bn mortgage servicing portfolio from the failed bank. Write to Diana Golobay.