During the thrift crisis of the 1980s, regulators adopted a policy of forbearance, allowing many insolvent thrifts to continue to operate rather than closing them immediately.

Was that policy correct or incorrect, and what effect did it have on the mortgage business?

Stuart Gabriel, a professor of finance and business economics at the University of Southern California, wrote recently, "Broad consensus among industry analysts suggests that delays in the closure of insolvent institutions led to substantial increases in both the direct and indirect costs of thrift resolution."

He notes that immediate closure of all insolvent thrifts would have led to much higher mortgage interest rates than were actually experienced under forbearance. And by late in the decade, he adds, little downward impact on mortgage rates because of forbearance was detectable.

This, Mr. Gabriel says, "provides further credence to a policy of immediate resolution of troubled institutions rather than forbearance." Mr. Gabriel's comments appeared in the Federal Reserve Bank of San Francisco's Weekly Letter last month.

They are based on research he did with Michael Bradley of Freddie Mac and Mark Wohar of the University of Nebraska at Omaha. A detailed account of the results will be published in the Journal of Money, Credit, and Banking next year.

Why did the impact of the big savings and loan crisis disappear? The researcher says the mortgage industry proved to be self-healing.

The thrifts' recurring rate-mismatch problems, along with regulatory changes, reduced the economic advantages they had enjoyed and contributed to the development of the secondary market for mortgages.

In an interview last week, Mr. Gabriel summarized: "In the early 1980s, there were substantial social costs related to forbearance. However, The problems of the thrifts helped other kinds of lenders to substitute for the thrifts and ease the disruption in the mortgage and housing industries."

In his article for the San Francisco Fed publication, Mr. Gabriel wrote: "Many thrifts remain viable providers of mortgage intermediation services in the evolved housing finance and regulatory environment."

But the good news he has for the economy and the bad news he has for thrifts is that thrifts no longer make a difference in terms of the pricing of permanent residential mortgages. In that regard, therefore, forbearance no longer makes any sense.

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