OTS Troubled by Delinquent Loans

The savings and loan industry posted a record $5.4-billion profit in 1995, but regulators expressed concern Wednesday about underlying trends, including rising delinquencies on mortgages and consumer loans.

Jonathan Fiechter, acting director of the Office of Thrift Supervision, said the nation’s 1,437 thrifts reported lackluster return on average assets, an important measure of investment return.

In addition, delinquent mortgages and consumer loans posted a small increase from third-quarter levels.

For the three months ended Dec. 31, delinquent single-family mortgages were 1.27% of all S&L; loans, up from 1.18% in the third quarter, and consumer loan delinquencies were 0.76%, up from 0.72%.

“While these increases are not yet serious, any time you have a rising level of delinquencies, that warrants a close monitoring,” Fiechter said.

Savings and loans are similar to banks, except they’re restricted primarily to making home mortgages and consumer loans, not commercial loans.

Fiechter cited a number of positive trends in the industry, including rising capital levels and a further decline in the number of troubled S&Ls.;

At year-end 1995, 97% of the industry was well capitalized by OTS measures, which means regulators believe the thrifts have sufficient money reserved for unexpected loan losses. Only five small thrifts were below regulators’ capital standards.

Fiechter said the 1995 profit broke the previous record of $5.1 billion in 1992. Last year’s record was consistent with broader banking trends in which lenders benefited from lower interest rates, a slow to moderately growing economy and cost-cutting trends.

For thrifts, the industry’s rising profitability was due to these broad trends as well as declining losses from unprofitable S&Ls;, Fiechter said.