Foreclosure, Federal Reserve Style : Planet Money The NY Fed owns a $30 billion real-estate portfolio stemming from its 2008 bailout of Bear Stearns, and is gingerly foreclosing on some properties where borrowers aren't paying their loans.
NPR logo Foreclosure, Federal Reserve Style

Foreclosure, Federal Reserve Style

The NY Fed is trying to sell Crossroads Mall in Oklahoma City, foreclosed on last year. UrbanReviewSTL/Flicrkr hide caption

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UrbanReviewSTL/Flicrkr

Foreclosure is bad news anytime. It stings even more when your lender is the Fed.

As part of its 2008 bailout of investment bank Bear Stearns, the Federal Reserve Bank of New York owns a portfolio of commercial and residential real estate around the country— and now, it's foreclosing on some properties when lenders can't make their mortgage payments, the Wall Street Journal reports.

While Fed officials are trying to avoid seizing properties, preferring to work with borrowers, sometimes they have little choice. The properties the New York Fed has foreclosed on include the Crossroads Shopping Mall in Oklahoma City and houses in California, Georgia, Illinois and Washington.

The New York Fed's portfolio includes some 9,000 residential loans and 50 commercial real-estate loans. It "faces certain unique issues" the WSJ reports:

It is trying to avoid selling problem assets at discounted prices, which could disrupt markets and hurt banks. And while the regulator is open to modifying existing commercial-property loans, it is less likely than some banks to restructure a loan in a joint-venture situation if it meant the New York Fed couldn't call the shots in a restructuring.

The New York Fed's stance about how to pursue foreclosures is a sensitive balancing act. If it proceeds with numerous foreclosure proceedings in the coming months, particularly on residential mortgages, it could trigger concern among legislators looking to protect homeowners in their districts. The issue is particularly sensitive because taxpayers helped fund the Bear Stearns bailout.

The Journal reports the portfolio that acquired the Bear Stearns assets is worth $29.4 billion, compared to the $30 billion the Fed paid in March 2008. At one point, the portfolio's value dropped as low as $25 billion.

UPDATE: The NY Fed may require banks to buy back bad assets acquired via the Bear Stearns bailout, a spokesman says and Bloomberg reports.