ABSTRACT
The home finance industry faces major disruption. Economic instability has upset the tidy relationship between mortgage yields and cost of funds, turning the thrift’s traditional asset-liability mismatch into a steady drain on net worth. Deregulation has allowed associations to compete for depositors at the price of more expensive money. Portfolio yields have risen at a painfully slow pace due to an inventory of low-interest loans. Through the strictures of regulation and historical precedence, savings and loans have developed in their own specialized manner. They are the primary home purchase lender. Their focus on both the asset and liability side has always been local. At the heart of the thrifts’ crisis lies its traditional policy of using short-term money to fund long-term commitments. This mismatch of maturities has always exposed associations to problems when yield curves diverged from their normal pattern. Rising short-term rates brought on disintermediation, thereby disrupting the availability of new loans.
