Sources and uses of funds in the fourth quarter 1983

Federal Home Loan Bank Board Journal, April, 1984 by Virginia K. Olin

Both mortgage lending and deposit flow to federally insured savings and loan associations slowed during the final quarter of 1983, compared with levels reached during the third quarter. The decline in deposit inflow was in contrast to the typical seasonal pick-up in the fourth quarter, but the drop in lending activity was mostly seasonal. Associations continued the increase in borrowings and reduction in liquidity holdings begun during the third quarter to obtain funds for lending. Deposit Trends

A reduction in jumbo certificate acquisitions resulted in a slowdown in deposit growth at federally insured associations during the fourth quarter of 1983. Nonetheless, deposit flow was in record volume for a fourth quarter, and the gain for all of 1983 was an annual peak.

The net deposit gain of $20.5 billion during October-December 1983 was down from the $25.6 billion increase during the third quarter. The slowdown entirely reflected a decline in net new deposit receipts from $14.3 billion to $8.7 billion. In contrast, interest credits rose $0.5 billion to an all-time quarterly high of $11.8 billion.

Changes in deposit structure were significantly affected by the removal of rate controls on virtually all retail certificate accounts effective October 1, 1983. In this new environment, associations could freely compete for retail funds by independently determining pricing and offering policies. Deposit flows during the fourth quarter indicate another substantial increase in small denomination certificates of $18.1 billion, up from a $16.1 billion rise during July-september 1983. In contrast, deposit flow to accounts without fixed term declined $0.8 billion. Additionally, jumbo CD growth slowed from $13.7 billion during the third quarter to $3.2 billion during the final three months of the year.

Among retail certificates, preliminary data suggest that balances increased during the fourth quarter for certificates with original maturities greater than six months but less than 2-1/2 years. The increase in balances in this maturity range contrasted with decreases in certificate balances maturing in six months or less and those maturing in 2-1/2 years or more during the same period. Mortgage Repayments

Mortgage loan repayments reached a record fourth quarter level of $17.5 billion, but were down slightly more than seasonally from the third-quarter peak of $18.6 billion, an all-time high. The continued strength of repayments reflected further declines in mortgages interest rates which stimulated home sales and refinancings. Mortgage Activity

Outstanding commitments for future mortgage lending increased $0.6 billion during the quarter and total $32.6 billion at the end of 1983. This nominal increase was contra-seasonal, however, and resulted in an increase in outstanding commitments measured on a seasonally adjusted basis from $30.9 billion at the end of September to a record $35.6 billion at year-end. (See Chart 1.) New mortgage lending commitments issued by associations slowed about seasonally to $41.5 billion during the quarter from the third quarter peak of $48.9 billion.

Mortgage lending continued at a strongpace, although down from record levels set during the third quarter. Total loans closed by associations were $35.9 billion during the fourth quarter, $3.7 billion below the third quarter peak. The quarter-to-quarter decrease in lending volume was smaller after seasonal adjustment-from $35.6 billion in the third quarter to $34.2 billion in the fourth.

The overall decline in lending activity was the net effect of mixed trends among loan purpose and property types. Among loan purpose categories, construction lending rose $0.3 billion to an all-time high of $10.6 billion in the fourth quarter. In contrast, permanent lending volume declined $2.8 billion to $16.0 billion, and the amount of refinancings decreased $1.2 billion to $5.9 billion. Nonetheless, permanent lending and refinancing loan volumes were at record fourth quarter levels and twice as large as the year-earlier amounts.

Lending volume on 1-to-4 family dwelling units declined from July-September 1983 to the final quarter. Loans made for construction purposes decreased $0.3 billion to $4.9 billion, and permanent loan closings declined $3.2 billion to $13.0 billion. Among the property types covered, the declined in volume was largest ($2.9 billion and 24.5 percent) for permanent loans for purchase of previously occupied single-family homes.

Multifamily lending volume was up $0.2 billion to $2.1 billion for construction loans, and permanent loan outlays rose $0.3 billion to $1.2 billion. Construction lending for nonresidential properties increased $0.5 billion to $3.7 billion, and permanent loan extensions rose $0.1 billion to $1.7 billion. Secondary Mortgage Market

Associations, on balance, increased their net sales of mortgages during the fourth quarter, due to a larger quarter-to-quarter increase in sales than in purchases. Mortgages sales typically increase during the year-end quarter, as associations take advantage of losses from sales for tax purposes. Gross sales increased $2 billion and totaled $14.5 billion, compared with a $1.3 billion increase in purchases to $12.8 billion.