Abstract SYNOPSIS: Beginning in 1987, SFAS91 severely limited the amount of loan fees that financial institutions could take into current income at the time of loan origination. This represented a dramatic change for many S&Ls that were accustomed to booking most of these loan fees as current income at the time of loan origination. The effect was to lower S&Ls' reported income, making compliance with regulatory net worth requirements more difficult in this troubled industry. SFAS91 was expected to be especially burdensome for weaker S&Ls because the standard came at a time when S&Ls were being required to meet higher net worth requirements. This study provides evidence of an association between SFAS91 and changes in S&Ls' loan transactions. Evidence from 193 S&Ls suggests that those not meeting their future net worth requirements were more likely to use mortgage loan transaction strategies that would mitigate the effects of SFAS91 on current income than S&Ls meeting these requirements. These strategies had the potential to alter the underlying economics of mortgage loan transactions in ways that may have affected both the cost and availability of the loans. Additional research is needed to determine more about the economic effects of SFAS91 and the extent of their impact on mortgage lending. Data Availability: Tape data used in conjunction with this report are publicly available. Questionnaire data are available subject to permission from the participating firms.
Groomer et al. (Tue,) studied this question.