California tries to avoid another RTC-style hit

When the federal government created the RTC to mop up the mess created by the S&L failures, California's Inland Empire took a huge hit to property values since so many properties (both homes and land) were dumped on the market at the same time at greatly discounted prices. This time, however, California officials are trying to avoid a similar fate. From a Wall Street Journal story:

Officials in San Bernardino and Riverside counties are determined to avoid a repeat of what happened 20 years ago, when the savings-and-loan crisis led to a massive selloff of distressed real estate in the area by the federal government's Resolution Trust Corp. Many of those properties, including foreclosed homes, were sold at fire-sale prices to investors who unloaded them quickly. In some cases, entire neighborhoods of what had once been homeowners turned into largely rental communities, further depressing property values and delaying an economic rebound...

Government representatives in the area are now scrambling to muster support for a federal bill that would allow local businesses and governments to buy up some of the real estate to make sure it doesn't fall into the hands of speculators who have no stake in the community. The bill, introduced Sept. 27 by Rep. Gary Miller, a Republican who represents some of the areas in Southern California hurting from the mortgage meltdown, promotes the formation of regional public-private partnerships that could buy homes in their geographic area from the Treasury. This approach, they argue, would help stabilize neighborhoods and maximize financial returns to taxpayers...

The concern in parts of Southern California illustrates the risks that could lie ahead for other communities as the Treasury begins a massive churn of assets. Depressed real-estate values in areas across the country could slide further if homes are sold to large financial investors who then flip them to others who want to make a quick profit.

Mr. Miller said he tried unsuccessfully to get his bill incorporated into last week's federal rescue package. He said he has spoken to other members of Congress who support the bill and that there is still time to debate the measure when Congress reconvenes in January...

Counties such as Riverside and San Bernardino are already trying to gear up for what is expected to be a massive real-estate sale once the Treasury program gains steam. Last week, they passed resolutions supporting the formation of the "Regional Asset Value Recovery Corporation," an Inland Empire partnership to "preserve and restore neighborhoods and communities."...

Mr. Miller's hastily written bill, H.R. 7189, is vague about how the proposed public-private partnerships would work. It would allow the Treasury to retain a stake in any of the properties that the partnerships acquire. Mr. Miller argues that the local partnerships would have better odds of ensuring that the assets rise in value, thus allowing the Treasury to retain a stake and "greatly improve the likelihood that the federal government makes a profit."

One of the biggest challenges, however, will be the unbundling of assets intertwined with various kinds of complex securities. In order to attract regional buyers, the Treasury would first have to group different assets by geography.