The Office of Thrift Supervision will streamline its lending rules today - the first major change since 1983.
Industry officials praised the changes, which are to take effect Oct. 30. The agency is to unveil the rules in final form today in the Federal Register.
"This really reflects a shift in the way the agency traditionally operated," said Brian J. Hurd, assistant general counsel for TCF Financial Corp., Minneapolis.
"They used to be a regulatory behemoth, you couldn't get them to do anything," he said. "Now, they're trying to listen to the industry."
The OTS is cutting its lending requirements nearly in half, to 22. In addition, the rules will now be more consistent with lending restrictions applied to banks. To aid compliance, the OTS has grouped all its lending- related rules and illustrated the changes being made with a chart.
In response to industry comment letters, the final rules also make clear that they continue to preempt state laws.
Gary G. Gilbert, a regulatory specialist at America's Community Bankers, said the changes could have a significant impact.
For example, the OTS now will exempt commercial loans made by a thrift service corporation from the parent thrift's commercial lending limit of 10% of assets. That will give some institutions the flexibility to do more small-business lending, he said.
Under the new rules, thrifts also will be allowed to develop their own underwriting standards for mobile home and prefabricated housing loans.
Thrifts also will be permitted to invest in housing authorities in any state where they have an office, instead of just in their home states. Mr. Gilbert said this should encourage thrifts to invest in community development projects in more areas.
The new rules also will let thrifts devise their own cost of funds indexes for adjustable-rate mortgages, rather than relying on external indexes such as those based on Treasury bill rates or the Federal Home Loan banks' cost of funds. That will help thrifts better adjust their mortgage rates to respond to their own costs, Mr. Gilbert said.
Thrifts must get OTS permission to use their own indexes. The rule, while giving thrifts more flexibility, also imposes more responsibility. "It's very important to the OTS that you disclose to consumers how you get that index," he said.
Thrifts were the only institutions that hadn't been allowed to devise their own cost of funds indexes, said Mr. Hurd of TCF. So the change will help savings and loans compete.
But he added: "As a practical matter, it probably won't make much difference."
Robert S. Duncan, chief executive officer, Magnolia Federal Bank for Savings, Hattiesburg, Miss., went further, saying the lending rules as a whole would have little impact.
"They won't have a great effect on the type of loans (thrifts make) or their business plans," he said.
Magnolia Federal, for example, hasn't reached the 10% ceiling on commercial lending. "The mobile home changes, while nice, won't affect us, either," he said. His market is dominated by a few aggressive mobile home lenders, he explained.
However, he stressed, just cutting out obsolete regulations and simplifying others is a great help.
"The rules had been a Byzantine collection of outmoded, unnecessary, and stagnant ideas," he said. The new rules "will be so much easier to read and understand."
