The nation's beleaguered thrift institutions are hurt by a lack of liquidity in their loan portfolios. Homeowners are hurt by energy costs that can total more than their mortgages.
Happily, aggressive marketing of a pilot home-improvement loan program for energy conservation may help both groups.
Actually a number of thrifts (particularly savings and loans) have pioneered their own energy conservation loan programs. But the Federal Home Loan Mortgage Corporation's (Freddie Mac) pilot home improvement Loan (HIL) is the first national secondary market for energy loans. In other words, Freddie Mac buys the loans from the thrifts, enabling the thrifts to make more loans with the money thus obtained.
According to Joseph Brancucci, director of the $11.6 million program, the impetus for HIL was a realization that the home-improvement business is eclipsing the home-mortgage business. Mr. Brancucci predicts the home-improvement business will reach a volume of $74 billion by 1984, made possible in part by over $960 billion in available equity which homeowners have accrued. The new program was authorized by Congress in 1978 as part of the omnibus Energy Conservation Policy Act.
Any thrifts that are members of a Federal Home Loan Bank (including federal savings and loans, cooperative banks, some state chartered S&Ls, and mutual savings banks) can participate in the loan program by using uniform applications and standardized terms of 5, 10, and 15 years (20 years if over $30,000). This allows simplified processing. The banks then sell 80 percent participation in the loans to Freddie Mac.
FHLMC then packages the loans it has bought from across the nation into offerings of $100 million or more and sells these packages as securities on the secondary market.
Here's an illustration of the benefits to an institution. A thrift institution sells FHLMC 80 percent of a million-dollar loan portfolio on which it charges homeowners 13 percent. It pays 12 percent on the $800,000 Freddie Mac participation. But the thrift would still receive $34,000 in loan income (13 percent on the other $200,000, plus the 1 percent interest remaining on the $800 ,000).