From his seventh-floor office in the headquarters of the Jefferson Corp. Robert H. McKinney has a clear view of Washington - the street, not the city. Across the way, on the corner of Washington and Pennsylvania, stands first Federal Savings and Loan. The former chairman of the Federal Home Loan Bank Board, who resigned last June, now heads both First Federal and Jefferson Corp., the parent company of Jefferson National Life Insurance and other subsidiaries.
But McKinney, 54, also keeps a sharp eye on political Washington from his vantage point as a member of the national team raising funds to reelect his old Annapolis classmate, Jimmy Carter. If his candidate is successful in 1980, McKinney expects once again to forsake Washington and Pennsylvania Streets for Washington, D.C., and Pennsylvania Avenue.
"My return here seems like a sabbatical," he declared last week in an interview. He said he told the president before leaving he would gladly serve in his second administration. When asked about rum ors that he would like to become secretary of the Treasury, McKinney, an attorney by profession, demurred. "I enjoy financial policy," he answered. "I consider myself an economist through on-the-job training."
in his nearly two years as head of the government agency that regulates the savings and loan industry, the man from Indiana often made his friendship with the president work to his advantage. At his confirmation hearing, McKinney was given a hard time because of his past connection with the industry by Sen. William Proxmire (D-Wis.), who called him, "a textbook example of interlocking between banking and other professions." By the time he left office, the industry was calling for his head.
Early in his term, he took a strong stance against redlining, the practice of discriminating against certain inner-city areas by refusing to make mortgage loans there regardless of the property's condition or the potential borrower's credit-worthiness.
When the other financial regulators, notably the Federal Reserve, thought he was too tough, McKinney got Carter to hold a joint White House press conference.
His ability to get presidential backing raised the FHLBB, in his words, from an obscure agency to one that "allowed me to be more effective with Capitol Hill.
"When I came in, the bank board was too close toindustry, too business oriented. As a result Congress had to pass consumer laws."
He said he succeeded in convincing the powerful chairmen of the House and Senate banking committees that the FHLBB could regulate the S&L industry effectively without having to rely on Congress to legislate necessary changes.
As an example, he pointed to the recently enacted law exempting savings and loan associations from direct jurisdiction of the Federal Trade Commission. The FTC had issued a complaint in 1976 against Perpetual Federal Savings and Loan of Washington, D.C., charging it was engaging in unfair or deceptive practices through its commercial bank-S&L interlock. The law now prevents prosecution of such cases against S&Ls by the FTC while requiring the bank board to establish a separate division of consumer of fairs.
Besides raising the profile of the Federal Home Loan Bank Board, McKinney said his major goals as chairman had been to revise the financial structure of the industry to coordinate housing policy with other agencies and to help rehabilitate cities.
While he speaks proudly of the Community Investment Fund, seems sure the money market certificate, of all the financial regulator's acts, had the greatest effect on the country. The interest rate on the MMC, with a $10,000 minimum, is pegged to that paid on the six-month Treasury bill. The MMC was introduced at a time when savings and loan associations were facing the threat of disintermediation or customer withdrawl of funds for investment in higher yielding instruments, such as Treasury securities.In 1974 the outflow of funds from thrifts caused a dramatic drop in house construction and helped bring on the recession.
In 1978 the MMC produced an immediate influx of capital, but it also meant S&Ls had to pay higher interest rates on savings while they still had low interest loans in their portfolios. As it became apparent the MMC was costing them a lot of money, S&L executives roundly criticized McKinney. Last March, sensing too much heat in the housing market, the FHLBB cut back the higher rate S&Ls were allowed to pay on MMCs, a move that cuased many savers to begin placing funds elsewhere.
The former chairman defended the creation of the MMC, as an action taken so that "housing would not again be the main culprit of the recession." Indeed, housing starts this year have held up much better than earlier projections. Yet some economists argue that taking the pressure off housing resulted in delaying the current recession by several quarters. Pushing the recession closer to the election of 1980 could hurt the incumbent's chances of reelection.
McKinney replied that the MMC did not affect the timing of a recession much, although he conceded it did somewhat. "Of course it also brought the small-savers issue down on us," he continued. Groups like the Gray Panthers lobblied for equal rates for depositors with less than $10,000. Again, with Carter behind him and over the objections of the industry, McKinney approved a somewhat higher passbook rate and shorter, no-minimum certificates in one of his last actions as board chairman.
The other major regulation involved the nationwide authorization of the variable rate mortgage (VRM), a loan that moves up or down within prescribed limits according to a cost-of-funds index. So the homeowner choosing a VRM can expect monthly mortgage payments to rise with inflation, (or decrease if it goes down). While this new device was welcomed by large S&Ls, especially in California, and new ones without low interest loans on their books, much of the industry looks at it with skepticism.
Critics see it as too complicated, something the public will not accept because of disclosure requirements that oblige a lender to show a prospective borrower how much interest rates have gone up in the past decade. Lenders are also unenthusiastic about making VRMs when interest rates may be about to go down. Even First Federal of Indianapolis, McKinney's own S&L, was doing no VRM business when he became its chairman.
McKinney admitted the disclosure was too tough, that he had bowed to congressional pressure in order to get the VRM through. Then he quickly added, "If it can't be sold with disclosure, there's something wrong with it."
The former bank board chairman also defended two other issues that were unpopular with members of S&Ls: The Community Reinvestment Act and interstate branching for the District. Noting that the reinvestment act was a creation of Congress, he said he had nevertheless wanted to exempt small associations from its antiredlining provisions, but could not because some of them were judged to be the worst discriminators.
As for allowing District-based S&Ls to branch into Maryland and Virginia suburbs - a move the majority of small associations across the country fear is a prelude to nationwide branching - McKinney said staff economists really believe it will inject more lending funds into the District. He denied the existence of internal memos also predicting the possibility of outflow of funds from the District, something the Maryland and Virginia associations had contended.
McKinney sees the money market certificate and the variable rate mortgage (plus other new instruments like NOW accounts and the recently approved Eurodollar borrowing) as the beginning of an important change in the financial structure of the S&L industry. For too long, he contended, it has been "sheltered by Regulation Q" the provision setting interest rate ceilings and allowing thrifts to pay higher rates than banks in order to secure a continued supply of housing funds. He envisions savings and loans as future family finance centers: financially flexible institutions that will offer a wide range of consumer-oriented banking services, such as transaction accounts, auto loans, credit cards, consumer loans and trust powers.
It is expected McKinney's place will be filled by Jay Janis, undersecretary of the Department of Housing and Urban Development under Patricia Harris. McKinney said he had supported board member Anita Miller "because it would be nice to have a woman" as head of the FHLBB, but he had told Carter that Janis, formerly a Florida developer, was "eminently qualified."
Asked if the stewardship of Janis, provided he is confirmed, will resemble his own, McKinney hesitated a moment and then replied, "Generally speaking, I'm more for change than he is. But I think he will follow my lead." U.S. League of Savings Association President Joseph Benedict predicted Janis' nomination will receive "widespread support due to his thorough knowledge of the potential and the problems of the savings and loan business." CAPTION: Picture, Former FHLBB chief Robert McKinney: economist through on-the-job training. By Margaret Thomas - The Washington Post