| A savings and loan association is a financial institution | | | | force in the early 20th century through assisting |
| which specializes in accepting savings deposits and | | | | people with home ownership, through mortgage |
| making mortgage loans. The term is mainly used in | | | | lending, and further assisting their members with basic |
| the United States; similar institutions in the United | | | | saving and investing outlets, typically through |
| Kingdom and some Commonwealth countries are | | | | passbook savings accounts and term certificates of |
| called building societies. They are often mutually held | | | | deposit. |
| (often called mutual savings banks), meaning that the | | | | Early mortgage lending |
| depositors and borrowers are members with voting | | | | The latest of mortgages were not offered by banks, |
| rights and have the ability to direct the financial and | | | | but by insurance companies, and they differed |
| managerial goals of the organization. It is possible for | | | | greatly from the mortgage or home loan that is |
| a savings and loan to be stock-based and even | | | | familiar today. Most early mortgages were short term |
| publicly traded. This means, however, that it truly no | | | | with some kind of balloon payment at the end of the |
| longer is an association and depositors and borrowers | | | | term, or they were interest-only loans which did not |
| no longer have any managerial control. | | | | pay anything toward the principal of the loan with |
| Early history of the savings and loan association | | | | each payment. As such, many people were either |
| At the beginning of the 19th century, banking was | | | | perpetually in debt in a continuous cycle of refinancing |
| still something only done by those that had assets or | | | | their home purchase, or they lost their home through |
| wealth that needed safekeeping. The first savings | | | | foreclosure when they were unable to make the |
| bank in the United States, the Philadelphia Savings | | | | balloon payment at the end of the term of that loan. |
| Fund Society, was established on December 20, 1816, | | | | This bothered government regulators who then |
| and by the 1830s such institutions had become | | | | established the Federal Home Loan Bank and |
| widespread. Savings and loans accepted deposits and | | | | associated Federal Home Loan Bank Board to assist |
| used those deposits, along with other capital that | | | | other banks in providing funding to offer long term, |
| was in their possession, to make loans. What was | | | | amortized loans for home purchases. The idea was |
| revolutionary was that the management of the | | | | to get banks involved in lending, not insurance |
| savings and loan was determined by those that held | | | | companies, and to provide realistic loans which people |
| deposits and in some instances had loans. The | | | | could repay and gain full ownership of their homes. |
| amount of influence in the management of the | | | | Savings and loan associations sprung up all across the |
| organization was determined based on the amount | | | | United States because there was low-cost funding |
| on deposit with the institution. | | | | available through the Federal Home Loan Bank for |
| The overriding goal of the savings and loan | | | | the purposes of mortgage lending. |
| association was to encourage savings and investment | | | | Further advantages |
| by common people and to give them access to a | | | | Savings and loans were given a certain amount of |
| financial intermediary that otherwise had not been | | | | preferential treatment by the Federal Reserve |
| open to them in the past. The savings and loan was | | | | inasmuch as they were given the ability to pay higher |
| also there to provide loans for the purchase of large | | | | interest rates on savings deposits compared to a |
| ticket items, usually homes, for worthy and | | | | regular commercial bank. The idea was that with |
| responsible borrowers. The early savings and loans | | | | marginally higher savings rates, savings and loans |
| were in the business of "neighbors helping neighbors". | | | | would attract more deposits that would allow them |
| In the United Kingdom, the first savings bank was | | | | to continue to write more mortgage loans which |
| founded in 1810 by the Reverend Henry Duncan, | | | | would keep the mortgage market liquid and funds |
| Doctor of Divinity, the minister of Ruthwell Church in | | | | would always be available to potential borrowers. |
| Dumfriesshire, Scotland. It is home to the Savings | | | | However, savings and loans were not allowed to |
| Bank Museum, in which there are records relating to | | | | offer checking accounts until the late 1970s. This |
| the history of the savings bank movement in Great | | | | impacted the attractiveness of being a savings and |
| Britain, as well as family memorabilia relating to Henry | | | | loan customer and required many of them to hold |
| Duncan and other prominent people of the | | | | accounts across multiple institutions so they could |
| surrounding area. However the main type of | | | | have access to checking and receive competitive |
| institution similar to U.S. savings and loan associations | | | | savings rates all at the same time. |
| in the United Kingdom is not the savings bank, but | | | | A famous perception of savings and loans at this |
| the building society and had existed since the 1770s. | | | | time was that they used the "3-6-3" business model: |
| The savings and loan in the early 20th century (in the | | | | Take Deposits at 3 % |
| U.S.) | | | | Lend at 6 % |
| The savings and loan association became a strong | | | | Be on the golf course at 3 o'clock. |