Thrifts praised a proposal from the Office of Thrift Supervision to reduce the number of lending and investment regulations by half and shift the agency's focus from regulation to guidance.

All told, OTS is planning to abolish or change to guidelines roughly 20 regulations in the Thrift Activities Handbook. For instance, loans made by a thrift's subsidiary service corporation will no longer be considered part of the percentage cap on commercial lending a thrift can make.

"This would free up additional room for the institution to lend," said Gary Gilbert, a regulatory specialist at America's Community Bankers.

Mr. Gilbert also said a number of loan documentation requirements are being changed from regulations to guiding principles. Many of the other regulations being abolished are redundancies.

This move toward a more flexible, guidance approach to supervision was applauded by thrifts.

"World Savings and Loan Association applauds the OTS' efforts to streamline existing regulations and agrees with the approach suggested by the OTS to reduce to 'guidance'...matters that are now in the form of 'regulation,'" wrote Robert C. Rowe, the vice president and general counsel for the $30 billion savings association based in Oakland, Calif., in a comment letter to the agency.

The proposal also would let thrifts tie adjusted rate mortgages not only to an external index, such as the prime rate, but also to an internal index created by the thrift.

"This (change) might be controversial from the consumers' point of view, because the internal index can't be verified in the newspaper," Mr. Gilbert said.

Thrifts and banks commented - in letters due April 16 - on the proposed changes, which are part of a regulatory review the agency started a year ago.

Thrifts did tell the OTS to tighten up its preemption of state laws. States might use exceptions to federal preemption listed in the proposal to undercut the agency's authority, industry officials said.

For example, the proposal said federal laws do not preempt states' general contract laws. So states could argue a particular issue is a matter of contract law not, say, a lending regulation, wrote Madeleine A. Kleiner, the general counsel at Home Savings of America.

The agency said it plans to finalize the rule by June 30, according to projects manager William J. Magrini.

Mr. Smith writes for the Medill News Service.

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