Mortgage rates have just about peaked, but the disappearance of the fixed-rate mortgage is likely to be one price of maintaining the savings and loan industry, Federal Home Loan Bank Board Chairman Jay Janis said today.
Despite record savings outflows recently, the S&L industry doesn't really have any problems that can't be surmounted, Janis told the annual convention of the U.S. League of Savings Associations here.
But he urged participants to help themselves by getting states to raise usury ceilings, discouraging speculation, avoiding the temptation to accept high commitment fees from builders as an inducement to give them mortgage money and seeking to repeal condominium conversion bans.
Replacement of the fixed-rate mortgage -- long the average American's primary hedge against inflation -- by the so-called rollover mortgate -- on which the rate is renegotiated every few years -- is "reasonably close to being inevitable," Janis said.
Even if inflation were to drop to 8 percent or 9 percent -- which some economists are predicting as the bottom of the current cycle -- it barely would be profitable for thrift institutions to continue lending on a long-term basis, he said.
Janis also said the FHLLB will take "compensating actions" such as last week's lowering of liquidity requirements to prevent housing starts from falling below where "anyone wants them to be."
The acceptable figure for the administration is said to be about 1.4 million starts annually.
Janis warned convention participants that credit-tightening measures initiated by the Federal Reserve on Oct. 26 and the slowdown already in progress are going to pull housing down further than economic planners had anticipated.
Janis urged members of the league to stay in the lending market in exchange for these compensating actions, and not t desert housing for more profitable investments such as short-term government securities.
"Let me assure you that I do not intend to assume a passive role in the months ahead," he told the convention. "I did not accept the chairmanship of the Bank Board to preside over the decline of the industry, or any part of it," he added, paraphrasing Winston Churchill's line about the British Empire.
Discussing Regulation Q. Janis said "I will fight to the end to preserve the differential" (which allows thrift institutions specializing in housing to pay one-quarter percent more than banks). When asked by reporters if that defense doesn't conflict with the administration's policy to phase out Regulation Q. Janis shot back, "I didn't say where the end was."
The reference was to the financial reform bill under debate in the Senate. The Carter administration has supported phasing out interest rate ceilings over 10 years, but has remained silent on whether to retain the differential, also contained in Regulation Q.