Causes of Savings and Loan Crisis!

Due to the sag in the economy, people have begun to research the Savings and Loan crisis to compare the economy in the early 20th century with the present time economy. Savings and Loan associations known well as thrifts are specialized in financial issues related to loans and savings accounts. These banking organizations are originated with the motive of supporting the individuals to get out of their debts and purchase homes. These were started after the Great Depression. Before the Great Depression, the mortgages were offered from the insurance providers and not from the banks and these mortgaged were different from the current day loans.

Savings and Loans Associations

The mortgages provided by the insurance companies were loans for short terms and they had balloon transaction while the loans were nearing maturity. Due to this, many people had to keep refinancing their houses or they had to opt for foreclosure since they were not able to handle the increasing payments. This grave situation initiated the origination of Savings and Loans Associations in 1932 when the Federal Home Loan Bank Act was approved by the legislature. The purpose is to provide the finance needed by the banks and savings and loans associations to encourage the purchase of home by offering long lasting mortgages.

The Savings and bad credit loans associations were directed to help the savings and loan crisis and certain guidelines were specified for the same. To enable increased approval of loan applications for the purchase of homes, the lending requirements were much relaxed. Due to this particular feature, many more people opted for this plan and got quick approval. Federal Deposit Insurance was raised and this helped in the purchase of properties for more value. Due to inflation, the value of the goods increased. The banks wanted to increase the capital amount but ended up making investments that were not promising.

The Savings and Loans Associations were in trouble as they depended on the savings deposits and home mortgages for their revenue. And inevitably, the rate of the mortgage increased to a great extent making the loans impossible for many people. This could be the first part of the savings and loan crisis with event that got the Savings and Loans in trouble. The inflation and stagflation had negative impact on most of the savings and loans associations. However, this could not be attributed to the savings and loan crisis.

Savings and loan crisis is due to the poor response of the concerned politicians and lenders to the economic situation at that time. An important lesson that could be learnt from savings and no credit check loans crisis is that improper regulations and adverse economical policies could cause great disaster in the economy of the nation. This blunder cost a very huge amount of money to the government. The taxpayers were burdened with hefty taxes. A great value of assets was lost due to the savings and loan crisis.

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