US thrift industry sends SOS; offers plan to aid S&Ls

The nation's troubled thrift institutions are sending up a cry for help.

Much of America's savings are entrusted to the nation's 4,613 savings and loan institutions and 463 mutual savings banks.

''Right now,'' says an industry official, ''we are losing one S&L a week or faster,'' as insolvent institutions merge with healthier ones.

The trend is accelerating. One expert, Andrew S. Carron of the Brookings Institution, predicts that more than 1,000 thrift institutions - nearly a quarter of the industry - may be forced to merge or close their doors.

No insured depositor, experts stress, should lose a penny during the turbulent times that lie ahead, although taxpayers as a whole would have to foot the bill for what may become a major federal bailout of failing thrifts.

Depositor accounts in both types of thrifts are insured up to $100,000 by the Federal Savings and Loan Insurance Corporation in the case of most S&Ls, and by the Federal Deposit Insurance Corporation in the case of mutuals.

Deposits in more than 600 state-chartered S&Ls and a few mutual savings banks are insured by state agencies, primarily in Maryland, Massachusetts, North Carolina, and Ohio.

The problem for the thrifts starts with the fact that, by government regulation, the bulk of their investments - especially for S&L's - is in the form of residential mortgages.

The whole thrift industry came into being and flourished as the primary vehicle through which millions of American families of modest means could own a home by making monthly payments on a mortgage.

This worked well so long as the thrifts could charge a higher interest rate on their mortgages than they paid out to depositors who opened savings accounts with them.

Then came changes in banking regulations. These changes prompted a proliferation of new, high-interest-paying savings instruments, including money market funds and certificates of deposit of varying amounts and duration.

Thrift institutions competed with banks and mutual funds for fresh deposits, but with a basic handicap. Most of their assets were locked into long-term, fixed-rate mortgages, yielding a low return to the lender.

This was especially true of S&Ls. Eighty percent of their total assets - $629 .8 billion in all - is tied up in mortgages, mostly residential. For mutual savings banks the equivalent figure is 58 percent of assets, totaling $171.5 billion.

Many American homeowners, shopping for the best return on their money, pay 6 to 8 percent interest on their mortgages and expect the same institutions to pay them 12 to 14 percent on deposits.

''Two-thirds of our mortgage assets, or $330 billion,'' says James W. Christian, chief economist of the United States League of Savings Associations (USLSA), ''are under 10 percent. The average cost (to S&L's) of new funds is approaching 12 percent.''

Small wonder, says Dr. Christian, ''that the net worth of the industry now is

On March 3 the thrift industry unveiled in Washington a three-part plan designed, according to industry officials, to help both lenders and home buyers.

The program could cost taxpayers as much as $10 billion in its first year of operation, says USLSA chairman Roy G. Green, through a federal infusion of cash by the US Treasury.

If, on the other hand, says Mr. Green, ''economic conditions improve soon and interest rates fall, the program would have a minimal cost and would self-destruct.''

A new federal government corporation, called the Community Depository Conservation Corporation (CDCC), would be created to administer the program:

* Thrift institutions with at least 20 percent of their assets in fixed-rate residential mortgages, or mortgage-backed securities, would be eligible for a subsidy on mortgages carrying rates of less than 9 percent.

Simply put, the CDCC would grant eligible thrifts an interest rate ''supplement'' that would, for example, raise the yield on an 8 percent mortgage to perhaps 11 percent.

Cost of this part of the program, says Green, might be $7.5 billion during the first year, if 30-month Treasury rates (on which the supplement formula would be based) average 14 percent.

* Promissory notes, guaranteed by the US Treasury, would be issued to participating thrifts whose net worth falls below 1.5 percent of assets.

The notes, in effect, would boost the net worth of the thrift, allowing it to continue operations. No federal money would be spent, unless the thrift institution were forced into liquidation. As the thrift regained profitability, the notes would be retired.

* Through a ''home buyer assistance plan,'' the CDCC would commit funds to allow a borrower to obtain a mortgage loan at roughly 4 percent below the market rate. This ''buy-down'' provision would last for three years, after which the mortgage would be refinanced at market rates.

A US Treasury commitment of $2.5 billion the first year, according to the USLSA, ''would stimulate $83 billion in home mortgage loans (resulting) in the sale of 1.6 million housing units.''

The league's proposed program would boost the federal deficit at a time when Congress and the White House are trying to trim government spending.

White House officials, who have opposed a federal bailout of thrifts, claim that when interest rates fall, the housing market will revive and S&Ls and mutuals - the chief suppliers of mortgage money - again will operate in the black.

Separately, the chairman of the House Banking Committee, Rep. Fernand J. St. Germain (D) of Rhode Island, proposes creation of a $7.5 billion fund to help the thrifts.

In the long run, says Dr. Christian, thrifts need above all ''asset flexibility'' - that is, permission to invest their assets more broadly than simply through mortgages.

Already the Federal Home Loan Bank Board, the govenment agency responsible for thrift institutions, is exploring ways to allow thrifts to engage in a wide variety of banking and other business activities.

This, however, would put the thrifts into direct competition with the commercial banking industry, which is expected to challenge in court any regulations enlarging the scope of thrift operations.