Assets at the nation's major thrifts fell by 6% last year as consumers shunned the group's mainstay product - adjustable-rate mortgages.
The top 300 thrifts saw their assets drop to $768 billion from $817 billion in 1991, an American Banker survey has found.
Though the group's assets have been shrinking since 1988, the principal reason in earlier years was insolvencies.
Now, with the industry getting back on its feet, the shrinkage is stemming more from problems in generating new loans, analysts say.
Many big thrifts specialize in adjustable-rate mortgages, but consumers have been flocking to fixed-rate models, eager to lock in the lowest rates in 20 years. Fixed-rate mortgages are the forte of mortgage companies.
"The problem is that a lot of people don't want ARMs," says Gary Gordon, a thrift analyst at PaineWebber Inc.
Mortgages made at adjustable rates fell to about 20% of total mortgages last year, continuing a long decline. In 1988, adjustables accounted for nearly 60% of all new home loans.
To be sure, the big thrifts are showing some clear signs of renewed health.
Fat interest-rate spreads on their portfolios helped the top 300 thrifts build their total capital about 14% last year, the survey said. The lack of asset growth, however, remains a source of concern.
H.F. Ahmanson, the nation's largest thrift company, and Great Western Financial Corp., the second largest, each have suffered substantial declines in their share of their mortgage market.
Ahmanson dropped from No. 2 among all mortgage originators in 1990 to No. 8 last year, according to the newsletter Inside Mortgage Finance. Over the same period, Great Western fell from No. 3 to No. 12.
The drop in interest rates was not the only culprit.
Thrifts' efforts to book adjustables are also being hampered by increased competition for the loans by mortgage banking companies like Country-wide Credit Industries. These players have been seeking to take advantage of an increasingly developed secondary market for adjustables.
To some extent, the lending slowdown at thrifts reflects tightened credit standards.
"A lot of the loan growth in the 1980s was a result of under-writing standards that the thrifts don't use anymore," says Mr. Gordon.
For example, many thrifts have stopped offering "low doc" adjustables, which required little documentation of a borrower's income. In addition, many have begun to require bigger down payments than in the past.
Richard Deihl, chairman of Irwindale, Calif.-based Ahmanson, appears to be content to let others write fixed-rate mortgages. Roughly 75% of the company's mortgage originations are adjustables, just the reverse of the industry-wide pattern.
"We're portfolio lenders and we don't want to hold fixed-rate loans at low rates," he says. "We've been through a cycle previously where the industry got caught in a squeeze and we don't want that to happen again."
Mr. Deihl says Ahmanson is managing to originate such a high percentage of adjustables because it kept its marketing efforts focused on the product and because the California market has a somewhat stronger appetite for adjustable loans than the country as a whole.
Some other key developments in the thrift industry last year:
* Core capital increased by more than 19% at the top 300 thrifts and by 12% for the industry as a whole.
* The total number of thrifts shrank to 2,3 50, from about 2,600 in 1991 and almost 3,000 in 1990.
* Thrifts controlled by Resolution Trust Corp. dropped to 81, from 91 and 179 in the two preceding years, and their assets declined sharply as well.
* The thrifts with the highest capital ratios were mostly smaller institutions, usually with conservative investment policies and low loan-to-deposit ratios.
* Of the 15 thrifts with the worst total-capital ratios, 13 were already in the hands of the RTC. Of the 50 thrifts with the worst total-capital ratios, the biggest was Glendale Federal Bank, No. 5 in assets.