ORGS 2010 Chapter Notes - Chapter 6: Savings And Loan Association
27 Dec 2014
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Chapter 6 details the explosion of the mortgage market during the years 1981-1986, and the subsequent collapse of the solomon mortgage department. In october, 1981, lights began to flash on the desks of the mortgage traders. It seemed as if suddenly every s&l manager in the country wanted mortgages. So s&ls were in the unfortunate position of paying. 14% on new deposits, while taking in just 5% on old home loans. The entire industry was on the verge of collapse. So congress implemented a tax break which could save the industry. Essentially, the thrifts were able to swap portfolios of loans with one another, in order to take advantage of higher returns. They were also able to amortize losses over the life of the loan, thus not showing the huge losses that they were taking on their books immediately. Most importantly, they were able to reclaim losses against taxes paid over the previous ten years.
