House of Troubles

The fortunes of few separate areas of business are so closely linked as those of savings and loan associations and home building. S & Ls provide 43% of the money to finance new homes, put nearly all of their lendable funds into housing. Squeezed by the savings war, S & Ls have been forced to slash their mortgage lending, causing builders and lenders alike to forecast a severe slump within a few months in the already limping housing industry. "Not only are lenders refusing to talk to home builders about plans for this summer and fall," says Executive Vice President Norman Strunk of the U.S. Savings and Loan League, "but they are even cutting back drastically on loans to finance the purchase of existing homes."

The Time Bomb. A sharper downturn seems inescapable. So far this year housing has slipped only 1.3% behind its 1965 pace, but that is because most homes have gone up under deals made with lenders last year when money was abundant. These commitments are now beginning to expire, and builders can arrange only a trickle of new ones. "It's like a time bomb," says Builder Vincent Amore of Pittsburgh.

Mortgage commitments are off by 20% in Chicago and Detroit, and Atlanta's Fulton Federal S & L has stopped promising to make future loans entirely. For lack of mortgage funds, Builder John R. Minchew of Annandale, Va., outside Washington, expects to trim his 100-house-a-year output by 25% in September. Savings banks and insurance companies have also cut back mortgage commitments sharply.

Even if they can negotiate a loan, which they often cannot, home buyers find the terms the stiffest in years. Last week the Federal Reserve Board reported that interest rates on conventional mortgages since January have climbed nearly 1% , to a national average of 61% . On a typical 25-year, $20,000 loan, that means borrowers must pay $131.94 a month instead of $125.83. Small though the difference seems, it raises the total cost over the life of the mortgage from $37,749 to $39,582. Loan rates have risen to 61% at some Detroit S & Ls, to 7% in Seattle, and as high as 7 1/2% around Los Angeles.

Disguised Blessing. The scarcity of mortgage money is greatest in Southern California, housing's No. 1 market. Lytton Financial Corp. has fired 70 employees and, like several other big S & Ls in the Los Angeles area, stopped accepting new loan applications. That could prove a blessing in disguise, because the 14-county area suffers from a glut of 80,000 unsold new homes and vacant apartments--a year's supply. As a consequence, while California S & Ls have a manageable 5% of their assets tied up in such money losers as delinquent loans and foreclosed property, a few have a dangerously high 25% .

The Los Angeles public has lately seized on the problems of the S & Ls as reason to take some of its money out of them. Chairman John Home of the S & L-supervising Federal Home Loan Bank Board gave that impulse a nudge not long ago by telling a Senate subcommittee that 25 S & Ls across the U.S., with $1.3 billion in assets, were on the board's list of "more serious problem cases," while another 46 give the board cause for "concern."

Shaky Fringe. What happens in Los Angeles causes worries as far away as Washington, because Los Angeles is to S & Ls what Manhattan is to banking: the biggest center. There are also troubled S & Ls in Nevada, Arizona and Illinois, but nationally the shaky fringe adds up to only about 3% of the business. Yet savers need not worry: the Federal Savings and Loan Insurance Corp. has $1.5 billion to pay them off if a few S & Ls get really overextended.

For home buyers, the future looks bleaker. So long as the Federal Reserve Board keeps credit tight and interest rates high, mortgage money will be costly and hard to get.

This file is automatically generated by a robot program, so reader's discretion is required.