U.S. to lower cost of home-building loans Four federal agencies ease rules on S&Ls.

December 24, 1991|By New York Times

WASHINGTON -- In an attempt to encourage more lending, the four federal agencies that regulate banks and savings and loans are preparing new rules that would make it cheaper for institutions to make home-construction loans.

The Office of Thrift Supervision, which supervises the nation's savings associations, was the first of the four agencies to announce Monday that it would cut in half the amount of money that savings and loans must put aside as a cushion against possible losses from low-risk residential construction loans.

The Federal Reserve Board, the Federal Deposit Insurance Corp. and the Office of the Comptroller of Currency are expected to issue similar proposals soon for the banks that they regulate.

The move by the four agencies, which has been coordinated by the the Treasury Department, is the latest move in the Bush administration's broader effort to ease what it sees as a "credit crunch" that has inhibited an economic recovery.

Under the Treasury's guidance, the agencies have put pressure on their examiners to ease lending guidelines for banks and savings associations and have issued new guidelines intended to give institutions more latitude in making loans.

The examiners have come under criticism from President Bush and the secretaries of commerce and treasury as a leading cause of tight credit by applying loan guidelines too strictly.

Banks and savings associations must now put aside $8 as capital for every $100 in home-construction loans. But when the new rule is given final approval, expected in the spring, it will permit banks to set aside $4 for every $100 in home construction loans in which an owner has already put up at least 5 percent in earnest money for the home. The 5 percent is intended to reduce the riskiness of the loan.

"It may significantly modify what's available to homeowners," said T. Timothy Ryan Jr., director of the Office of Thrift Supervision. "There is a lack of available credit for new-home construction."

Ryan has taken a leading position among regulators in responding to the tightening of credit by lenders and is widely speculated to be among the administration's top choices as the new head of the Office of Comptroller of the Currency, which regulates many of the nation's banks. Robert L. Clarke, the acting comptroller, was denied a second term by the Senate Banking Committee last month. He is expected to step down in '' February.

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