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