WASHINGTON – An Atlanta developer and a Coweta County-based Congressman lashed out Wednesday against a program to buy up failed bank assets from the federal government.
At a U.S. House hearing, Scott Leventhal of Tivoli Properties and Republican Rep. Lynn Westmoreland, among others, accused the Federal Deposit Insurance Corporation of allowing companies to shake down borrowers. They also said the FDIC gave Rialto Capital Management and other companies sweetheart deals through the FDIC’s structured transition program.
Georgia is riddled with failed banks – a nation-high 78 have been closed since mid-2008. The FDIC typically finds a buyer for failed lenders, but billions of dollars in unwanted bank assets nationally have been bundled into several structured transition deals, in which the FDIC repackages bank assets into a limited liability corporation and allows a private entity to purchase 40 percent. The company typically accepts a management fee and finds a way to resolve the loans to help recoup costs of failures.
Bret Edwards, an FDIC official who oversees the program, said the program accounts for only 4 percent of assets the FDIC has acquired since 2008 and it is a last-resort method when the agency cannot resolve the loans or find a bank to take them over. Edwards testified that the agency has saved about $4 billion by using the program rather than cash sales of the loans.
Rialto, which is based in Miami but has an office in Atlanta, has drawn complaints for ruthlessness in seeking payment for the loans, typically from developers. Leventhal and others also complained that the government is giving leverage to a rival because Rialto’s parent company, Lennar Corp., is sometimes a competing developer.
Lennar CEO Stuart Miller said Rialto is performing an important service. He acknowledged loan collection is “adversarial and sometimes contentious” but said the commercial borrowers that the company deals with knew the risks. He also disputed accusations his company is getting a great deal for the loans, because the loans have lost significant value in the real estate market crash and Rialto splits the money it gets with the FDIC.
The sharpest questioning of Miller came from Westmoreland and Rep. Jaime Herrera Beutler, R-Wash., who likened Rialto to a schoolyard bully in its negotiation tactics and said her church had complained about them. Westmoreland said he had received numerous complaints about how Rialto starts with litigation rather than trying to settle amicably.
Miller denied this claim in previous testimony, but Westmoreland said constituent reports proved his claim.
“Your answers are the equivalent of giving me and this Congress the finger,” Westmoreland told Miller.
Leventhal, developer of several high-profile Atlanta projects, said he recently settled a legal dispute with Rialto over a loan. He also was the public face of a state Senate bill this year that critics say could have bailed out some developers and their partners from promises to repay loans for scuttled projects.
Backers said the bill, which failed to pass the state House, would have helped banks and protected companies from “vulture” creditors.
J. Scott Trubey contributed to this article.
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