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Pursuant to a legislative requirement, GAO evaluated the implications of a more stringent test for qualifying savings and loan associations to operate as insured thrifts, focusing on: (1) requirements changing the minimum thrift portfolio proportion of housing-related assets from 60 percent to 70 percent; and (2) better definition and restriction of acceptable thrift investments. GAO found that: (1) the supply of housing finance has become substantially less dependent upon thrifts' mortgage investments since the development and growth of mortgage-backed securities; (2) well-capitalized thrifts following nontraditional strategies performed comparably to well-capitalized thrifts following the traditional mortgage lending strategy; (3) if thrifts want to be profitable in the long term, they will have to broaden their activities or transform themselves into different sorts of financial institutions; (4) a more stringent qualified thrift lender test may not be necessary to ensure the availability of housing finance or to promote industry profitability and safety; (5) keeping the qualified thrift lender test at the current 60-percent level would help to ensure thrift industry safety and profitability and minimize the risks the industry presents to taxpayers; and (6) industry safety and soundness could be promoted by allowing safe and liquid assets, such as short-term U.S. Treasury securities, to be counted as qualified thrift investments.
This work provides an in-depth examination of the history of the U.S. thrift industry from 1950 to the present, with particular emphasis on the leading role played by Texas in transforming savings and loans (S&Ls) from financiers of home mortgages to the multipurpose financial entities they are today. The purpose of the book is not only to chronicle the response of the national S&L industry to various laws, economic conditions, and changing times, but also to demonstrate how, in Texas, state-chartered S&Ls provided a model of reform which reshaped not only the Texas S&L industry but the national industry as well. The authors also explore the current problems faced by the industry and present proposals which could help it move towards recovery. An ideal supplementary text for courses on financial institutons, this book will also be of significant value to thrift industry officials and policymakers concerned with resolving the massive problems confronting the industry. Organized chronologically, the book begins with an overview of national S&L activity from the inception of the industry in the mid-1800s through the postwar S&L boom. There follow separate chapters devoted to the 1950s American housing explosion and its impact on S&Ls; the 1966-1978 era of irregular price movements and unpredictable inflation; the period of crisis during the early 1980s marked by foreclosures, insolvency, and forced mergers. A detailed chapter covering the last five years examines both the period of apparent recovery from 1983-86 and the second crisis of the decade which began in 1986. The authors conclude by assessing the magnitude of the industry's remaining problems and pinpointing possible future problems of which the industry need to be conscious.