From: Bill Callahan, Frank FordTo: Interested parties in Greater ClevelandSeptember 19, 2008

Proposed "Resolution Trust Corporation" – a Community Protection Agenda

While the details are murky, Paulsen, Bernanke and Congressional leaders are publicly committed to create,within a few weeks, a new Federal entity described as analogous to the Resolution Trust Corporation. Yesterday'sBloomberg report says:

"The two regulators, in talks with lawmakers late today, sought support for a plan to help financialinstitutions remove from their balance sheets illiquid mortgage-related assets at the root of the year-longcredit crisis. Congressional leaders said they intend to work to pass such legislation within days."

Presumed insiders Brady, Ludwig and Volcker, in their op-ed piece about this proposal in the WSJ Wednesday,described the proposed entity's functions:

"Such a stabilizing mechanism would accomplish four much-needed tasks:"- First, by buying paper that otherwise is effectively not trading, it would help restore liquidity to themarketplace and help markets to function more fluidly again."- Second, by warehousing the troubled paper for a longer period than, for instance, the Fed's discount window typically should or could, it would allow for a more orderly liquidation of this paper, and thechance for much of it to recover a portion of its value."- Third, by giving the agency the ability to manage mortgages with flexibility to keep people in their homes and businesses running, it should lessen the number of foreclosures. This, in turn, would helpmoderate the decline in real estate values and the deterioration of neighborhoods, thus supporting house prices that in fact lie at the heart of the crisis."- Fourth, where necessary, like the RTC of the 1980s, this new mechanism can assist the Federal Deposit Insurance Corporation in resolving sick institutions that are so clogged with the troubled paper they cannot continue as independent entities. However, we would hope that purchasing the mortgage-related paper will minimize the need to provide emergency, short-term assistance to solvent bankinginstitutions."

The third function -- "managing mortgages" to "lessen foreclosures" -- is very attractive, of course, andpresumably will be a major political talking point of proponents. It's possible that this initiative represents abreakthrough for our efforts to tame the foreclosure beast in Cuyahoga County.But how would this work, exactly?We’re aware of three basic categories of "illiquid mortgage-related assets" that this "RTC" might take agree toacquire. The first is actual mortgages held by the institutions in their own portfolios. The second category --probably much bigger and more problematic -- is mortgage-based securities. The third is contracts andderivatives related to mortgage-based securities.It's easy to see how the "RTC" could take over the management, workout and disposition of actual unsecuritizedmortgages, just as the original RTC did. But unsecuritized home mortgages are not a very large factor in the