Savings and Loan Associations (S&Ls)

Overview

Savings and Loan Associations (S&Ls), also known as thrift institutions or simply thrifts, are depository institutions primarily involved in offering mortgage loans to individuals for purchasing residential properties. Unlike commercial banks, which provide a wider range of financial services, S&Ls traditionally focus on long-term home mortgage financing.

Examples

Federal Savings Bank: A modern example of an S&L, providing a range of services including savings accounts and home mortgage loans.
Mutual Savings and Loan Associations: Unlike stockholder-owned institutions, these are owned by their depositors and have a primary mission of supporting homeownership with favorable mortgage terms.
Local Credit Unions: Some credit unions also function as S&Ls by heavily focusing on residential mortgage lending.

Frequently Asked Questions (FAQs)

Q: How are S&Ls different from commercial banks?

A: S&Ls primarily focus on long-term home mortgage loans and traditionally had different regulatory requirements and deposit insurance mechanisms compared to commercial banks. However, the passage of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) in 1989 equalized many of these distinctions.

Q: What regulatory body oversees S&Ls?

A: The primary regulatory body overseeing S&Ls is the Office of the Comptroller of the Currency (OCC), although they may also be subject to state regulators. They were also part of the Federal Home Loan Bank System.

Q: Are S&Ls still important today?

A: Yes, S&Ls continue to play a crucial role in providing mortgage financing, especially for owner-occupied residential properties. This can be particularly beneficial for first-time homebuyers due to S&Ls’ focus on long-term, often lower-interest loans.

Mortgage Loans: Loans secured by the collateral of real estate property, typically used by borrowers to purchase residential or commercial property.
Residential Property: Real estate property that is used for residential purposes, including single-family homes, townhouses, condominiums, and multi-family buildings.
Commercial Banks: Financial institutions that provide a wide range of services including savings and checking accounts, loans, and investments, but are not as focused on residential mortgage lending as S&Ls.
Federal Home Loan Bank System: A regional banking system consisting of 11 district banks that provide stable, on-demand, low-cost funding to American financial institutions for home mortgage loans, community investments, and infrastructure.

Online Resources

References

“Historical Dictionary of the U.S. Banking System” by Richard Sylla
“The Savings and Loan Crisis: Lessons from a Regulatory Failure” by James R. Barth, Susy Gill, and William Wallace
“Money, Banking, and Financial Markets” by Stephen G. Cecchetti and Kermit L. Schoenholtz

Suggested Books for Further Studies

“The Thrift Institutions Industry” by Rowena Olegario
“Managing Conflict of Interest in the Banking Industry” by Arnold A. Heggestad and Alfred A. Porembka
“Modern Banking” by Shelagh Heffernan

Real Estate Basics: Savings and Loan Associations (S&Ls) Fundamentals Quiz

### Are Savings and Loan Associations (S&Ls) primarily engaged in commercial lending? - [ ] Yes, they mostly provide loans to businesses. - [x] No, they primarily focus on residential mortgage loans. - [ ] They do not engage in lending activities. - [ ] They equally serve residential and commercial lending. > **Explanation:** Savings and Loan Associations (S&Ls) primarily focus on originating, servicing, and holding mortgage loans, particularly on owner-occupied residential property. ### What act passed in 1989 significantly changed the regulatory landscape for S&Ls? - [ ] The Dodd-Frank Act - [x] The Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) - [ ] The Glass-Steagall Act - [ ] The Home Mortgage Disclosure Act > **Explanation:** The Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) was enacted in 1989 to reform the regulation of S&Ls and equalized many regulatory distinctions between S&Ls and commercial banks. ### Prior to the passage of FIRREA, what distinct regulatory mechanism existed for S&Ls? - [x] Separate deposit insurance mechanisms - [ ] Exclusive access to Treasury funds - [ ] Shared regulations with credit unions - [ ] Direct supervision by the Federal Reserve > **Explanation:** Before FIRREA, S&Ls had separate regulatory requirements and deposit insurance mechanisms compared to commercial banks. ### How are mutual Savings and Loan Associations different from stockholder-owned institutions? - [x] They are owned by their depositors. - [ ] They provide only commercial loans. - [ ] They have no earnings. - [ ] They are not regulated by the government. > **Explanation:** Mutual Savings and Loan Associations are owned by their depositors instead of stockholder-owned institutions, which are owned by shareholders. ### What system are S&Ls typically affiliated with for additional funding and stability? - [ ] Federal Reserve System - [ ] U.S. Treasury - [x] Federal Home Loan Bank System - [ ] World Bank > **Explanation:** S&Ls are typically affiliated with the Federal Home Loan Bank System, which provides stable, on-demand, low-cost funding for mortgage loans and community investments. ### Which regulatory body currently oversees S&Ls? - [ ] Consumer Financial Protection Bureau (CFPB) - [ ] Federal Reserve Bank - [ ] Securities and Exchange Commission (SEC) - [x] Office of the Comptroller of the Currency (OCC) > **Explanation:** The Office of the Comptroller of the Currency (OCC) is the primary regulatory body that oversees S&Ls. ### What type of property do S&Ls primarily finance through their mortgage loans? - [ ] Commercial Property - [x] Owner-occupied Residential Property - [ ] Agricultural Land - [ ] Industrial Zones > **Explanation:** S&Ls primarily finance owner-occupied residential property through their mortgage loans. ### Can S&Ls operate without being a member of the Federal Home Loan Bank System? - [ ] Yes, they must operate independently. - [ ] No, it's mandatory to be a part of the Federal Reserve only. - [x] Yes, affiliation is not mandatory but offers benefits. - [ ] Membership in the Federal Home Loan Bank System is free of charge. > **Explanation:** While S&Ls can operate without being a member, affiliation with the Federal Home Loan Bank System offers additional stability and funding resources beneficial for mortgage lending. ### What areas did S&Ls focus on before the changes brought by FIRREA? - [ ] Credit card services - [x] Long-term home mortgage loans - [ ] International banking - [ ] Investment banking > **Explanation:** Before FIRREA, S&Ls were distinguished by their emphasis on long-term home mortgage loans. ### Which financial products are S&Ls primarily known for? - [ ] Investment Vehicles - [x] Home Mortgage Loans - [ ] Cryptocurrency Exchanges - [ ] International Money Transfers > **Explanation:** S&Ls are primarily known for their focus on originating, servicing, and holding home mortgage loans for residential properties.