1931

Bank Sets Precedent by Detailing Every Asset

Feb. 14 — The first complete detailed bank statement to be ever published by a commercial bank in America was published this year by the First National Bank of Englewood, Chicago suburb. The statement in full double page spread advertisements appeared in the South Town Economist of Chicago, when the bank issued its annual statement, and the story of it constituted one of the remarkable annals in the trend of bankers to tell the public more about their policies and institutions.

Lists every asset

The statement is the most complete possible. It lists every bond the bank owns; it gives the price the bond is carried at on the books of the bank and the value at the market; it gives a complete list of the commercial paper holdings of the bank with the names of firms.

In addition, it details its customers' loans and in this case without mentioning names. It classifies these loans and lists them by maturities…

One point worth noting is that this is a medium sized bank, and its frank statement demonstrates that such small institutions can be run just as safe as any bank in the country. No institution, with its footings in the hundreds of millions, could publish a better statement than the First National Bank of Englewood has this year.

1997

Freddie Mac Jumps into Subprime Mortgages

Oct. 8 — Freddie Mac is diving into subprime lending, ending months of speculation over how deeply the agency would go into the burgeoning market.

Freddie Mac and its rival, Fannie Mae, outlined their approaches to lending to tarnished borrowers at the Mortgage Bankers Association's annual meeting Tuesday in New York. Their participation could accelerate growth in a sector that has become a new frontier for many lenders and, ultimately, could bring rates down for borrowers.

Chairman Leland C. Brendsel said Freddie will begin buying lower-quality loans over the coming year and proceed further down the credit spectrum in 1999. "We will buy all the loans we can that meet our parameters and can be priced profitably."

Freddie Mac will deal with mainstream lenders as well as companies that have traditionally offered subprime products, he said.

Freddie Mac will first buy so-called A-minus-quality loans and then move on to the B and C credits of more challenged borrowers, Mr. Brendsel said. He declined to discuss how much buying Freddie Mac would do. All told, the subprime industry originates about $125 billion annually, with A-minus credits accounting for about 10% of volume, according to industry estimates.

Fannie Mae will remain on the fringes, said chairman James A. Johnson. The company will focus on counseling subprime, or B- and C-rated borrowers, with the aim of turning them into A-caliber credits and buying their loans, Mr. Johnson said.

"We can make A's out of B's and C's in many cases, but not all," Mr. Johnson said.

Although Fannie Mae and Freddie Mac have different strategies for the subprime market, both companies say they are motivated by a desire to make mortgages more affordable, especially to African-Americans, immigrants, and others who have been cut out of the mainstream market. The subprime market generally includes people with nontraditional credit records or dings in their credit records.

Freddie had launched a pilot program to buy home equity loans to get a sense of the subprime market but had not detailed long-range plans.

Fannie Mae had begun to focus on counseling of subprime credits, but some observers saw this as a prelude to deeper involvement-a step Mr. Johnson said his company will not take.

Mainstream lenders generally welcomed Fannie Mae and Freddie Mac involvement, saying it would mitigate risks to mortgage bankers. But because of the companies' different approaches, some lenders wondered whether the market might become segmented.

Under Fannie Mae's program, a subprime borrower could wait a year-a period for credit counseling-and perhaps receive an A loan. That same subprime borrower could opt to act immediately and receive a loan backed by Freddie Mac that carried a higher than A quality rating but a lower rate than traditional subprime loans.

Established subprime lenders are not enthusiastic about the agencies' using their buying clout to alter the market and undercut the wide profit spreads they have traditionally enjoyed.

Smart subprime lenders will recognize that the industry is changing, Mr. Brendsel said.

"Those that try to create barriers from that happening are ultimately going to fail."

Mr. Brendsel said he wasn't referring to Fannie Mae, which is taking a more circumspect approach to subprime. But he did say, "We hope they always can expect a challenge from us."

Analysts say there will most likely be a shift in rate structures, with Freddie's buying clout reducing rates to a degree.

"This will bring on more competitive pressures," said Kevin Spinner, a vice president at Keefe, Bruyette & Woods Inc., New York.

But Freddie Mac is also a business whose aim is to produce profits while expanding homeownership, Mr. Spinner said.

The degree of impact on lending rates "depends on what Freddie Mac is willing to pay for the loans and what they are willing to accept as a return," Mr. Spinner said.

Freddie Mac president David W. Glenn said the company feels strongly about outside guarantees and other safeguards, as it proceeds down the credit spectrum.

1968

Thrifts Unite Against a Common Adversary

May 17 — The presidents of two major thrift industry groups Thursday applauded the growing unification of savings banks and savings and loan associations and called for closer cooperation in the future.

At the opening session of the 48th annual conference of the National Association of Mutual Savings Banks, NAMSB president Harlan J. Swift and Hans Gehrke Jr., president of the United States Savings and Loan League, both spoke on the importance of the growing collaboration between their groups.

"The increasingly powerful theme of thrift industry unification, a theme played to the constant, challenging counterpoint of commercial bank competition," was cited by Mr. Swift as the most important development of the past year for savings institutions.

He said: "The basic identity of interest between savings banks and savings and loan associations will not only remain but will grow stronger as commercial banks intensify their attacks on the very concept of an independent mutual thrift system."

Mr. Swift, who also is president, Erie County Savings Bank, Buffalo, N. Y., said that the "cannibalistic propensities of commercial banking" have long been evident.

During the past decade, he stated, commercial bank maneuvers have been directed increasingly at thrift institutions, as commercial banks have become vigorous competitors for savings and time deposits in an effort to counteract the effect of rising interest rates and contracyclical monetary policy on their demand deposit growth.

"This commercial bank thrust, it seems to me," he declared, "carries increasingly less force in view of the growing internal strength of our institutions and the growing external ties with the savings and loan industry."

As to industry unification, Mr. Swift pointed out two milestones of the past year. He referred to the development of the Federal Savings Institutions Bill (H. R. 13718), which is strongly supported by the mutual and S&L industries, and to the establishment of the Joint Savings Bank-Savings and Loan Committee on Urban Problems.

Taken together, he said, they are a comprehensive blueprint for unified thrift industry action to meet the changing financial needs of the communities in which Americans will be living in the years ahead…