Characteristics of Savings Banks Thrifts Recent Developments of Saving Banks from SLs

♦ Deregulation of Saving Banks - Restrictions on the types of savings accounts could offer have also been eased, and the 1982 financial institution reform legislation vastly expanded their available services and savings offerings, enabling them to compete with less restricted credit market investments.

Because of economic difficulties and the 1982 reforms, S&Ls experienced a great deal of crisis and are changing dramatically.

♦ Mergers between thrifts, both inter- and intra-state, have reduced their number and created a few very large institutions. This has occurred both in rescue of troubled institutions, and to gain the financial size to take advantage of new asset and service powers.

♦ Thrifts now have the power to offer commercial and consumer loans and make a variety of other investments directly or through their service corporations. Tax laws still require heavy mortgage investment for the special deduction, but the new powers imply a reduced home loan emphasis in the future.

♦ Financial deregulation during the 1980s freed S&Ls to participate in most of the activities traditionally limited to commercial banks. Some S&Ls now use the term "bank" in their names. Some people see the commercial banks and the S&Ls essentially merging into one type of institution. However, the 1989 thrift industry "bailout" legislation has re-established many regulations for S&Ls.

♦ Government regulations require that a majority of their assets must be in real estate. Business and consumer loans are permitted to a limited extent but pale when compared with loans secured by real property.

As a general rule, most home loans do not exceed 95% of the appraised value or sales price of the home, whichever is lower. Exceptions include government-backed loans, such as FHA and DVA. Most thrifts limit the maximum amount on a single loan to 1% of their total assets. Hence, larger thrifts are able to accommodate large loan requests more readily than smaller savings banks.

♦ Most thrifts limit their loans to 30 years, although 40-year loans are permitted in some cases. Fifteen-year loans are also widely promoted, especially in the home refinancing market. Sometimes, during periods of rising interest rates, many of these loans include provisions for due dates (balloons) in as few as three to five years, or for rollovers thereafter at the prevailing market rate. These have monthly payments amortized for 30 years, but the unpaid balance is due in three, five, or seven years.

♦ Interest rates in the past were highest among the Institutional real estate lenders. This was due to the large demand for loans and to the higher risks associated with higher loan-to-value ratios. (High loan-to-value means that the amount of the loan is high in relation to the appraised value or sales price of the property.) Currently, rates charged by commercial banks and savings banks are basically the same.

♦ Their basic real estate lending is on single-family, owner-occupied dwellings, but in a favorable market thrifts wilt also finance mobile home loans, non-owner-occupied dwellings, apartments, and commercial and industrial properties.

♦ Combination loans are often available. Such loans combine construction (short-term financing) and take-out loans (long-term or permanent financing) into one loan.

♦ Savings banks are permitted to make collateral loans secured by the borrower's savings accounts, savings certificates, bonds, existing secured notes, and certain other forms of readily liquid assets.

0 0

Post a comment