What is the Savings Loan Association?
The Savings Loan Association (S&L) is a financial institution that provides banking and housing loan services. It is somewhat comparable to banks and credit unions, particularly the latter, but with a different overall goal and structure.
Also known as savings banks, rif institutions, or merely recycling, S&LS is a private institution usually owned by clients or shareholders, but some companies are open to the public. They receive savings from individuals and use those funds to primarily provide housing mortgages. We may also provide checking accounts, home equity loans, or other financial products or services.
History of the Savings and Loan Association
The Modern Savings and Loan Association arose from the New Deal’s efforts to stimulate the housing market during Great Repression. S&L played a major role in enabling homeownership for millions of middle-class Americans throughout much of the 20th century.
The Federal Mortgage Banking Act of 1932 established the Federal Mortgage Banking System, a network of 11 (originally 12) government-sponsored entities designed to fund and support member home lending agencies. This is similar to today’s Federal Reserve system for commercial banks.
As a result, the wave of savings and loans that was characterized by local federal governments across the United States, supported by low-cost government funding, was able to offer long-term mortgages at fixed rates. These eventually evolved into 30-year mortgages, as we know today.
In 1980 there were about 4,000 savings and loan associations. As of 2023, it was under 600, according to the Federal Deposit Insurance Company (FDIC).
During the savings and loan crisis of the 1980s and 1990s, many people closed their doors. Inflation and competition with other lenders went bankrupt, but the uncruel practices by other players have damaged the reputation of the entire industry.
For most of their existence, S&LS was insured by the Federal Savings and Loan Insurance Company (FSLIC). It went bankrupt after having to bail out so many rift pieces, FSLIC was abolished in 1989, S&LS fell into the FDIC range, and banks also insured.
Pros and Cons of Savings and Loan Associations
Things borrowers need to know about today’s savings and loan associations
Though not common today, savings and lending associations still exist, usually to expand their funds to home buyers. They operate like banks and credit unions in that they provide many of the services of bank accounts and mortgages. Unlike most banks, however, they focus on mortgages and savings accounts, as well as retail (individual) clients. By law, 65% of assets must be in consumer loans or products.
They are far less than the major banking brands, but savings and loan associations tend to increase interest rates on savings vehicles, unlike credit unions. Many S&L’s corporate structures are similar to those of credit unions. Both are “mutual” societies, meaning that they are technically owned by customers and borrowers.
