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Savings and loan association A savings and loan association is a The savings and loan association became financial institution which specializes a strong force in the early 20th century in accepting savings deposits and making through assisting people with home mortgage loans. The term is mainly used ownership, through mortgage lending, and in the United States; similar further assisting their members with institutions in the United Kingdom and basic saving and investing outlets, some Commonwealth countries are called typically through passbook savings building societies. They are often accounts and term certificates of mutually held (often called mutual deposit. savings banks), meaning that the Early mortgage lending depositors and borrowers are members The latest of mortgages were not offered with voting rights and have the ability by banks, but by insurance companies, to direct the financial and managerial and they differed greatly from the goals of the organization. It is mortgage or home loan that is familiar possible for a savings and loan to be today. Most early mortgages were short stock-based and even publicly traded. term with some kind of balloon payment This means, however, that it truly no at the end of the term, or they were longer is an association and depositors interest-only loans which did not pay and borrowers no longer have any anything toward the principal of the managerial control. loan with each payment. As such, many Early history of the savings and loan people were either perpetually in debt association in a continuous cycle of refinancing At the beginning of the 19th century, their home purchase, or they lost their banking was still something only done by home through foreclosure when they were those that had assets or wealth that unable to make the balloon payment at needed safekeeping. The first savings the end of the term of that loan. bank in the United States, the This bothered government regulators who Philadelphia Savings Fund Society, was then established the Federal Home Loan established on December 20, 1816, and by Bank and associated Federal Home Loan the 1830s such institutions had become Bank Board to assist other banks in widespread. Savings and loans accepted providing funding to offer long term, deposits and used those deposits, along amortized loans for home purchases. The with other capital that was in their idea was to get banks involved in possession, to make loans. What was lending, not insurance companies, and to revolutionary was that the management of provide realistic loans which people the savings and loan was determined by could repay and gain full ownership of those that held deposits and in some their homes. instances had loans. The amount of Savings and loan associations sprung up influence in the management of the all across the United States because organization was determined based on the there was low-cost funding available amount on deposit with the institution. through the Federal Home Loan Bank for The overriding goal of the savings and the purposes of mortgage lending. loan association was to encourage Further advantages savings and investment by common people Savings and loans were given a certain and to give them access to a financial amount of preferential treatment by the intermediary that otherwise had not been Federal Reserve inasmuch as they were open to them in the past. The savings given the ability to pay higher interest and loan was also there to provide loans rates on savings deposits compared to a for the purchase of large ticket items, regular commercial bank. The idea was usually homes, for worthy and that with marginally higher savings responsible borrowers. The early savings rates, savings and loans would attract and loans were in the business of more deposits that would allow them to "neighbors helping neighbors". continue to write more mortgage loans In the United Kingdom, the first savings which would keep the mortgage market bank was founded in 1810 by the Reverend liquid and funds would always be Henry Duncan, Doctor of Divinity, the available to potential borrowers. minister of Ruthwell Church in However, savings and loans were not Dumfriesshire, Scotland. It is home to allowed to offer checking accounts until the Savings Bank Museum, in which there the late 1970s. This impacted the are records relating to the history of attractiveness of being a savings and the savings bank movement in Great loan customer and required many of them Britain, as well as family memorabilia to hold accounts across multiple relating to Henry Duncan and other institutions so they could have access prominent people of the surrounding to checking and receive competitive area. However the main type of savings rates all at the same time. institution similar to U.S. savings and A famous perception of savings and loans loan associations in the United Kingdom at this time was that they used the is not the savings bank, but the "3-6-3" business model: building society and had existed since Take Deposits at 3 % the 1770s. Lend at 6 % The savings and loan in the early 20th Be on the golf course at 3 o'clock. century (in the U.S.) 1 A B C D 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103