Breaking COVID19 News
The Corona Virus had
all but shut down conventional lending in late March 2020 and most of April 2020 . Although it now appears that many banks have loosened up , they are far behind in applications due to the shelter in place restrictions and lack of certainty in the market .
This situation may provide a boon to the private lending industry as it has done at times over the past 30 years ; however , a cautionary tale might ensue should the perceived lockdown last for a few more months . The main reason is that a prolonged economic decline can produce long lasting effects that may take years to recover , especially in certain markets such as restaurants , retail , and any place where people gather . Different economic interruptions have occurred over the past 30 years that , for the private lender , with foresight , fared better than just before the downturn in the market .
In the mid 1980s to the mid 1990s , the Savings and Loan crisis shuttered many real estate lending institutions . Almost one out of three Savings and Loans failed from 1986 to 1995 . It was the most significant collapse since the Great Depression .
According to author , Kimberly Amadeo , “ In the 1970s ,
stagflation combined low economic growth with high
inflation . The
Federal Reserve raised interest rates to end doubledigit inflation . That caused a recession in 1980 .
Stagflation and slow growth devastated S & Ls . Their enabling legislation set caps on the interest rates for deposits and loans . Depositors found higher returns in other banks . At the same time , slow growth and the recession reduced the number of families applying for mortgages . The S & Ls were stuck with a dwindling portfolio of lowinterest mortgages as their only income source .
The situation worsened in the 1980s .
Money market accounts became popular . They offered higher interest rates on savings without the insurance . When depositors switched , it depleted the banks ' source of funds . S & L banks asked Congress to remove the lowinterest rate restrictions . The Carter administration allowed S & Ls to raise interest rates on savings deposits . It also increased the insurance level from $ 40,000 to $ 100,000 per depositor .
By 1982 , S & Ls were losing $ 4 billion a year . It was a significant reversal of the industry ' s profit of $ 781 million in 1980 .
Between 1982 and 1985 , S & L assets increased by 56 %. Legislators in California , Texas , and Florida passed laws allowing their S & Ls to invest in speculative real estate .
Amongst scandalous activity such as putting pressure on the Federal Home Loan Banking Board to overlook suspicious activity , the crisis pushed states like Texas into a recession . When bad land investments were auctioned off , real estate prices collapsed .”
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