What Are Savings and Loan Associations?
Savings and Loan Associations (S&Ls) are depository institutions that primarily specialize in originating, servicing, and holding mortgage loans for owner-occupied residential properties. Their main focus is on facilitating long-term home mortgages, offering a secure option for individuals planning to purchase or refinance their homes.
The Evolution of Savings and Loan Associations
Historically, Savings and Loan Associations were separate from commercial banks. This distinction was based on several factors including their focus on long-term home mortgage loans, unique regulations, distinct deposit insurance mechanisms, and affiliation with the Federal Home Loan Bank System.
The passage of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) in 1990 blurred these distinctions. FIRREA restructured the way S&Ls operated, bringing them closer in regulation and function to commercial banks. Nowadays, all depository institutions are eligible for affiliation with the Federal Home Loan Bank System if they specialize in home mortgages.
How Do Savings and Loan Associations Work?
- Loan Origination: S&Ls initiate the process of creating mortgage loans tailor-made for residential property owners.
- Loan Servicing: These institutions manage the collection of monthly payments, helping borrowers keep track of their outstanding balances and arranging payment schedules.
- Holding Loans: S&Ls usually hold the mortgages rather than selling them off immediately, creating a long-term relationship with the borrower.
Benefits of Dealing with Savings and Loan Associations
- Specialization in Home Mortgages: Given their primary focus, S&Ls offer specialized products and expertise in home mortgage loans.
- Personalized Service: They often provide a more personalized service compared to commercial banks, making the loan process smoother and more friendly.
- Affiliation with the Federal Home Loan Bank System: This usually means better and often more secure mortgage products for homeowners.
Example
Consider this scenario: Traditionally, Savings and Loan Associations stood apart from commercial banks due to their emphasis on long-term home mortgage loans, separate regulations and deposit insurance systems, and their affiliation with the Federal Home Loan Bank System. With the passage of FIRREA in 1990, many of these distinctions were dissolved. Today, any depository institution willing to focus on home mortgages can affiliate with the Federal Home Loan Bank System.
Conclusion
While S&Ls have evolved significantly, their core mission of serving home buyers and owners remains as crucial as ever. Understanding the role and benefits of Savings and Loan Associations is important for anyone entering the housing market.
Frequently Asked Questions
What is the primary focus of Savings and Loan Associations?
Savings and Loan Associations focus primarily on originating, servicing, and holding mortgage loans for owner-occupied residential properties.
How did the FIRREA change the Savings and Loan Associations?
The FIRREA restructured the regulations around S&Ls, aligning them more closely with commercial banks and broadening their scope of affiliation with the Federal Home Loan Bank System.
Are Savings and Loan Associations better for mortgage loans compared to commercial banks?
Given their specialization in home mortgages, S&Ls often provide more tailored and personalized mortgage services than many commercial banks.
Can any depository institution join the Federal Home Loan Bank System?
Yes, as long as they choose to specialize in home mortgages, they are generally eligible to join the Federal Home Loan Bank System.
Related Terms: Commercial Banks, Federal Home Loan Bank System, FIRREA, Depository Institutions, Mortgage Loan.
