Savings & Loan Men Teach Bankers Lesson

NEW MONEY MERCHANTS

A BANK, so the old saying goes, is a place where you can always get a loan--when you don't need one. While this may have been true in the past, bankers are now rapidly changing their ways. The main reason is that some of their major functions are being usurped by some hard-selling upstarts eager to lend money. They are the nation's 6,000 savings and loan associations, which represent the fastest-growing financial business in the U.S. As their name implies, savings and loan associations have two main functions: 1) to help people save their money, 2) to supply mortgage loans for house buyers. At the annual convention of the U.S. Savings and Loan League in Los Angeles last week, savings and loan men took stock of how they are doing in both fields--and found that they are doing far better than the banks.

Last year, of the $8.1 billion that went into savings accounts, 44% went into savings and loan associations (which have about 14 million members) v. only 35% into commercial banks and 21% into savings banks. Last year they handled some 37% of all home-mortgage loans, more than the commercial and savings banks combined, and more than four times the share of the insurance companies. With an estimated total of more than $8 billion in mortgage loans being written this year alone, the associations are financing one in every four new houses being built in the U.S. Assets of the nation's savings and loan associations have tripled since the war to a record of some $30 billion, and by 1960 savings and loan men expect them to hit $50 billion.

Behind the spectacular rise of the associations lie many factors, including the growth of the entire economy. While bankers by and large have waited for business to come to them, the savings and loan men have gone out and drummed it up.

As the U.S. changed from a nation of tenants to a nation of homeowners (57% of all non-farm homes are now owned by the people who live in them), savings and loan men took pains to cash in on the trend by concentrating on the mass market. Says the U.S. Savings and Loan League's Executive Vice President Norman Strunk: "We love the guy who walks in with 50 bucks to start a savings account, because we know that in five years he'll probably have several times that in his account --and in the meantime, the chances are good he may have taken out a loan with us."

To get the $50 guys, savings and loan men spend upwards of $20 million a year on advertising--far more, proportionately, than the $45 million or so spent by banks, whose assets are seven times larger. A number of savings and loan associations offer many traditional banking services, including safe-deposit boxes, travelers' checks and money orders. They also have gifts for new investors, offer special lures for children. Last year 300 associations were using the services of Hopalong Cassidy to promote savings among moppets. But the biggest lure of all is the interest paid on savings. The average savings and loan dividend is 2.8% v. the 1 3/4% paid by banks.

To counteract these figures, the bankers have been wheeling out some arguments of their own. Bankers complain that many savings and loan associations do not make it clear that they are not banks; that with 83% of their capital tied up in long-term mortgages, they are neither diversified nor able to pay off investors if there should be a sudden rush of withdrawals. Savings and loan men answer that, under law, 6% of their funds are kept in cash or Government bonds, hence are readily liquid, and most accounts are Government-insured, just like most savings accounts. They also argue that the home-mortgage loans of any association, taken in cross section, "are highly diversified, [since] the employment and professions of borrowers vary widely."

At last week's convention in Los Angeles, the U.S. Savings & Loan League laid out a program for Government action. The members, now legally restricted to investing in Government bonds and home mortgages, want permission to invest in certain high-grade corporate stocks. They want permission to make loans up to 90% of appraised value (v. the 80% allowed now), and to extend their loan period from 20 to 25 years. That would mean a $10,000 house could be bought for only $61.41 a month v. the current $68.

Savings and loan men, who have long opposed Government interference in the housing industry, were strongly against the Eisenhower Administration's liberalization of the Federal Housing Act. Since it has been liberalized, they think similar benefits should be extended to their business. There is also a deep-seated belief, as Howard Edgerton says, that "the U.S. doesn't need a liberalized version of the FHA.

Private enterprise can do the job better." The postwar record of the associations is the strongest argument that the free-enterprising home-loaners are right.

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