OTS Raises Housing Requirement for Thrifts

WASHINGTON - The Office of Thrift Supervision on Tuesday issued a strict rule that forces savings and loans to concentrate on mortgage lending.

The revised "qualified thrift lender test," which took effect immediately, requires S&Ls to keep 70% of their portfolios in housing loans and investments to maintain their charters.

The change was mandated by a 1989 law that Congress passed to prevent the sort of reckless commercial lending that bankrupted the industry's deposit insurance fund. Previously, thrifts had to keep 60% of their portfolios in housing assets and had broader investment choices.

Under the new rule, thrifts will have to measure their qualifying assets each week. Over a two-year period, qualifying investments must average 70% of assets.

S&Ls that fail the test would eventually lose their ability to borrow from the Federal Home Loan Bank System and might be forced to convert to commercial banks, a costly proposition for most S&Ls. Institutions could fail the test as early as June 27, 1993.

Industry officials complain that the rule could backfire on Congress by preventing diversification of S&L portfolios - a risk-reducing technique. The industry has been lobbying Congress to change it.

Widespread Trouble Expected

Hundreds of thrifts are expected to have trouble complying with the test. Out of 2,235 thrifts that were solvent last Sept. 30, 421 fell short of the new benchmark and 203 barely passed, according to the U.S. League of Savings Institutions.

"The problem is in the law itself," said James Grohl, U.S. League spokesman. "Given what they had to work with, the OTS did the best they could."

Foreclosed Realty Counts

"They didn't have much wiggle room," said Patrick Forte, president of the Association of Financial Services Holding Companies.

The final rule permits S&Ls to count the value of foreclosed real estate toward the test - something not permitted in earlier drafts. Without this change, some institutions had complained, S&Ls would have been reluctant to seize assets from defaulted borrowers, for fear of failing the test.

Mr. Grohl said the change is unlikely to drive up foreclosures.

Also, OTS ruled that thrifts may count investments in subsidiaries that derive at least 80% of revenues from mortgage investments.

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