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From the mid-1930s onward, B&Ls began morphing into federal savings and
loan (S&L) institutions, which had a charter from the U.S. government and relied on
federal deposit insurance.
KEY TAKEAWAYS
A B&L, also known as a thrift, gets its start when a pool of individuals agree to
pay a membership fee and subscribe to a certain number of shares that have a
predetermined maturity value. The members are then obliged to pay a certain
amount each month until the maturity value of their shares had been reached.
If an individual took out five shares, each with a maturity value of $600, they
would be able to take out a loan for up to $3,000. Because of limitations in the
amount of capital these associations held, members would generally have to take
turns—or, more specifically, outbid the other members—in order to take out a
home loan. If they still owed money on the shares, they would continue to pay them
off until the note was canceled.
B&Ls largely relied on a share-accumulation model, whereby members committed
to buying shares in the association and subsequently had the right to borrow against
the value of those shares in order to purchase a home.
The growth of B&Ls was fueled by the rising income of skilled laborers
around this time. While they typically couldn't afford the hefty down payment
needed for a bank loan, their increased earnings made it possible to buy real
estate through this alternate source of funds.
The use of B&Ls reached its apex in 1927 when 12,804 of them were
scattered across the country, serving more than 11 million members. Within a
decade, however, that influence would be greatly diminished.