Word: ls
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Dates: during 1970-1979
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...interest rates, the chief sources of most mortgage money dry up. Depositors in savings and loan associations and savings banks withdraw their funds and put them into better-paying investments such as Treasury bills. According to experts in the Federal Home Loan Bank Board system, which supervises S and Ls, the process has already begun. Result: the housing industry, which was beginning to show signs of an upturn-1.8 million starts in February v. 1.4 million in December-could well be hammered down again...
...rates of between 9% and 9 ½%-up from a national average of 7 ¾% in the first half of 1973. Down payments have at least doubled in the past few months; 40% is now common in some parts of the country. Worst of all, at some S and Ls and savings banks, the prime sources of residential mortgage money, new loans are unavailable on any terms whatever. Laments Boston Realtor Jack Conway: "This is the granddaddy of all mortgage droughts...
More important, it has started an unintended flood of money out of S and Ls and savings banks; depositors are pulling cash out of passbook accounts that pay only 5¼% annual interest and buying Treasury bills, bank certificates of deposit (CDs) and other investments that sometimes yield more than 9%. Through early 1973, S and Ls were taking in savings at an average net rate of more than $1 billion a month, but they suffered a net outflow in July; in August a staggering $1.2 billion was withdrawn, the third largest monthly loss on record. Since then, the situation...
...wild cards, sold to savers who will keep at least $1,000 on deposit for at least four years, yield interest at whatever rate the issuer chooses to pay; Manhattan's First National City Bank last week was offering CDs yielding 9.59% for this quarter. S and Ls can and do sell wild cards, but their ability to do so is severely limited by a rule specifying that the total amount of wild cards an institution offers cannot equal more than 5% of its reserves. Commercial banks, which have much larger reserves than S and Ls, are offering...
Closing the Window. Meanwhile, some S and Ls, strapped for funds, have stopped making new mortgage loans altogether. They include Sun Federal in Portland, Maine's largest, and First Federal in Chicago, the biggest in Illinois. Others are keeping their mortgage windows open a mere crack by granting loans only to long-time depositors, and in some cases actually demanding that a home buyer maintain a savings-account balance equal to the size of the mortgage loan he seeks. The market is tightest in states like New York and Illinois, where usury laws keep mortgage-interest rates below...