The Garn–St Germain Depository Institutions Act of 1982 (Pub.L. 97–320, H.R. 6267, enacted October 15, 1982) is an Act of Congress that deregulated savings and loan associations and allowed banks to provide adjustable-rate mortgage loans. It is disputed whether the act was a mitigating or contributing factor in the savings and loan crisis of the late 1980s.
The bill, whose full title was "An Act to revitalize the housing industry by strengthening the financial stability of home mortgage lending institutions and ensuring the availability of home mortgage loans," was a Reagan Administration initiative.
The bill is named after its sponsors, Congressman Fernand St. Germain, Democrat of Rhode Island, and Senator Jake Garn, Republican of Utah. The bill had broad support in Congress, with co-sponsors including Charles Schumer and Steny Hoyer. The bill passed overwhelmingly, by a margin of 272–91 in the House.
An important consumer change was to allow anyone to place real estate in their own trust without triggering the due-on-sale clause that allows lenders to foreclose on a current loan upon transfer to another. This greatly facilitates the use of trusts to pass property to heirs and minors. It may also protect the property of wealthy or risky owners against the possibility of future lawsuits or creditors, because the trust owns the property, not the individuals at risk. The bill states "... a lender may not exercise its option pursuant to a due-on-sale clause upon ... a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property[.]" (The Garn St. Germain Depository Institutions Act of 1982, (U.S.C.) 1701j-3(d)(8).)
Title VIII of the act, Alternative Mortgage Transactions, allowed banks to provide adjustable-rate mortgage loans.
This summary is from Wikipedia.
The summary below was written by the Congressional Research Service, which is a nonpartisan division of the Library of Congress, and was published on Sep 30, 1982.
(Conference report filed in Senate, S. Rept. 97-641) Garn-St Germain Depository Institutions Act of 1982 - Title I: Deposit Insurance Flexibility - Deposit Insurance Flexibility Act - Part A - Federal Deposit Insurance Corporation Amendments - Amends the Federal Deposit Insurance Act to authorize the Federal Deposit Insurance Corporation (FDIC) to make loans to, make deposits in, purchase the assets or securities of, assume the liabilities of, or make contributions to, any insured bank if such action is taken: (1) to prevent the bank's closing; (2) to restore a closed insured bank; or (3) to lessen the risk to the Corporation posed by an insured bank under the threat of instability due to severe financial conditions. Authorizes the FDIC, in order to facilitate a merger or consolidation of an insured bank or the sale of assets of such insured bank and the assumption of its liabilities, or the acquisition of its stock, to: (1) purchase any such assets or assume such liabilities; (2) make loans or contributions to, or deposits in, or purchase the securities of, such institution; (3) guarantee it or the company which controls or will acquire control of it against loss by reason of merging or consolidating; or (4) any combination of the above. Prohibits the FDIC from using such authority to purchase the voting or common stock of an insured bank. Requires the Corporation, in its annual report to Congress, to report the total amount it has saved by exercising the authority provided in this Act. Amends the Home Owner's Loan Act of 1933 to permit the Home Loan Bank Board to authorize the conversion of a State-chartered savings bank insured by the FDIC into a Federal savings bank. Requires continued FDIC insurance coverage for a converted bank. Permits such a conversion only where: (1) the board of trustees of the bank has specified in writing that the bank is in danger of closing or is closed, or that severe financial conditions exist that threaten the bank's stability and a conversion is likely to improve its financial conditions; and (2) the board of trustees has requested in writing that the FDIC use such authority. Amends the National Housing Act to grant the Federal Home Loan Bank Board the same supervisory powers with regard to a FDIC insured federal savings bank that it has with other Federal associations. Amends the Federal Deposit Insurance Act to allow a closed insured bank with assets of a specified amount, or insured banks with specified assets which are in danger of closing, to be acquired by out of State banks or holding companies. Permits the FDIC, in the case of a closed bank, to sell the assets of such bank and arrange for the assumption of its liabilities by an insured depository institution located in the same State. Permits the FDIC, in the case of an insured bank with a certain amount of assets which is in danger of closing, to arrange an acquisition by an insured depository institution located in the State where the insured bank is chartered. Amends the Bank Holding Company Act of 1956 to permit a waiver of notice and hearing requirements to allow the Federal Reserve to approve emergency acquisitions of thrift institutions by commercial banks. Part B - Federal Home Loan Bank Board Amendments - Amends the Home Owners' Loan Act to allow the Federal Home Loan Bank Board to authorize a mutual institution to become, or merge into, a newly-chartered, Federal stock savings bank. Amends the National Housing Act to permit the Federal Savings and Loan Insurance Corporation (FSLIC) to provide assistance to insured institutions when severe financial conditions exist which threaten the stability of a significant number of insured institutions. Includes deposits in the institution or the purchase of securities as a type of assistance. Prohibits FSLIC purchase of the voting or common stock of an insured bank. Permits the Corporation to authorize an insured institution eligible for assistance to merge with any other insured institution or an FDIC insured bank or to be acquired by any holding company. Amends the Federal Home Loan Bank Act to waive the requirement when severe financial conditions exist that a portion of net earnings of the banks be set aside semiannually to a reserve account, and to allow the banks to pay dividends from undivided profits. Amends the National Housing Act to permit the FSLIC to borrow from the Federal Home Loan banks. Requires the rate on such a loan to be at least the bank's marginal cost of funds, with adequate security. Permits the FSLIC, if extraordinary financial conditions exist, to terminate distribution of shares of the secondary reserve and utilize said reserve on the same basis as the primary reserve. Part C - Credit Unions - Amends the Federal Credit Union Act to permit the National Credit Union Administration Board to authorize: (1) a merger or consolidation of an insured credit union which is insolvent, or is in danger of insolvency, with any other insured credit union; or (2) a purchase and assumption by an insured credit union of all or any part of the assets and liabilities of any other insured credit union which is in such danger. Permits the Board, ex parte without notice, to appoint itself as conservator and immediately take possession and control of the business and assets of any insured credit union where: (1) such action is necessary to conserve the assets of such a credit union; (2) the credit union consents to such an action; and (3) in the case of an insured State-chartered credit union, the State credit union supervisor is consulted at least 24 hours before the use of this authority by the Board. Part D - Sunset Provisions - Terminates the emergency provisions contained in Title I of this Act three years after the date of enactment. Title II: Net Worth Certificates - Net Worth Certificate Act - Amends the National Housing Act and the Federal Deposit Insurance Act to authorize the FSLIC and the FDIC to increase or maintain the capital of a qualified institution by making periodic purchases of capital instruments ("net worth certificates"). Declares that each Insurance Corporation, with respect to the certificates held by it, shall have a priority over any claim arising out of an equity interest in an insured bank in the event of a liquidation or reorganization and over any right of equity holders to participate in future earnings. Requires such a bank to have: (1) a prospective net worth of at most three percent of its assets; (2) losses for two consecutive quarters; (3) a net worth of not less than one-half of one percent of assets after any purchase of its net worth certificates by the Corporation; and (4) investments in residential mortgages or mortgage-backed securities equal to at least 20 percent of its loans. Sets forth the initial net worth certificates that the FSLIC and the FDIC may purchase. Allows the FSLIC and the FDIC to establish criteria which, with respect to ranges of net worth, calculation of losses, and percentage of losses to be met by purchases of net worth certificates, differ from such criteria set forth by this Act. Prohibits both the FSLIC and the FDIC from using their authority to purchase the voting or common stock of a qualified institution. Prohibits any such assistance from being provided to a qualified institution if the FSLIC or the FDIC determines that providing such assistance would be costlier than liquidating such institution. Terminates the provisions of this title three years after the enactment of this Act. Title III: Thrift Institutions Restructuring - Thrift Institutions Restructuring Act of 1982 - Part A - Form of Charter; Demand Accounts - Amends the Home Owners' Loan Act of 1933 to authorize the Federal Home Loan Bank Board to charter Federal stock banks as well as savings and loan associations and mutual savings banks for investment and credit purposes in addition to the provision of home financing. Permits a Federal savings and loan association to raise capital in the form of demand accounts. Specifies that all savings accounts and demand accounts will have the priority upon liquidation. Reduces from 30 days to 14 days the statutory notice-of-withdrawal period for savings accounts. Repeals the prohibition against the issuance of capital stock by Federal savings and loans. Grants any association the authority to issue such capital stock. Permits any institution that is a Federal Home Loan Bank member (or is eligible to become a member) to convert to a Federal savings and loan association, a Federal savings bank, or a Federal mutual savings bank (and from the mutual form to the stock form, or vice versa). Revises the procedures and requirements for conversion of any Federal association back to a State type institution. Allows any aggrieved person to obtain review of a final action of the Board or the FSLIC which approves or disapproves a plan of conversion from the mutual to the stock form. Permits any Federal savings bank chartered before the enactment of this Act or any Federal savings bank formerly organized as a mutual savings bank to continue to make any investment or engage in any activity not otherwise authorized by this Act to the degree it was authorized to do so. Amends the National Housing Act to retain FSLIC jurisdiction over State mutual to State stock conversion involving insured institutions. Eliminates specified reporting requirements concerning such conversion activity. Repeals the prohibition against the creation of Federal stock institutions in States where stock associations do not exist. Part B - Investments - Amends the Home Owners Loan Act of 1933 to expand investment authority of associations with respect to: (1) overdrafts; (2) real property loans; (3) time deposits; (4) State securities; (5) consumer loans; (6) personal property; (7) education loans; (8) housing and land development loans; (9) foreign assistance investments; (10) small business investment companies; (11) commercial loans. Provides for the phase-out before January 1, 1984, of interest rate differentials for any category of deposits or accounts between any bank and any savings and loan. Requires the Depository Institutions Deregulation Committee to authorize not later than 60 days from enactment of this Act a new account that will enable depository institutions to compete with money market mutual funds. Declares that no limitation on the maximum rate or rates of interest payable on deposit accounts shall apply to such accounts. Prohibits any association from conditioning an extension of credit on the purchase of a product from the association. Prohibits any association from establishing, retaining, or operating a branch outside the State in which the association has its home office, unless the association qualifies as a domestic building and loan association. Prohibits any savings and loan holding company whose subsidiary insured institution fails to qualify as a domestic building and loan association from commencing, or continuing for more than three years after such failure, any business activity other than those specified for multiple savings and loan holding companies and their subsidiaries. Part C - Preemption of Due-on-Sale Prohibitions - Permits a lender to enter into or enforce a contract containing a due-on-sale clause with respect to a real property loan. Postpones until three years after enactment of this Act authorization to enforce a due-on-sale clause in the case of any contract involving a real property loan made or assumed during a period when a State had prohibited due-on-sale clauses. Permits a State legislature to enact laws within such three-year period with respect to loans originated in non-Federal institutions. Permits the Comptroller of the Currency and the National Credit Union Administration to regulate similar loans originated by national banks or federal credit unions. Sets forth circumstances under which a lender may not exercise its option under a due-on-sale clause. Declares that such rules and regulations may permit a lender to exercise its option under a due-on-sale clause with respect to a real property loan and any related agreement under which a borrower obtains the right to receive future income. Part D - Miscellaneous - Amends the Home Owners' Loan Act of 1933 to allow the courts to assess attorneys' fees against the Federal Home Loan Bank Board only when the agency loses the case. Grants authority to compensate members of the Federal Savings and Loan Advisory Council. Amends the Federal Home Loan Bank Act to require a five-year waiting period before an institution which has withdrawn from membership may acquire new membership in any Federal Home Loan Bank, except where such withdrawal is a consequence of a transfer of membership on a non-interrupted basis between banks. Title IV: Provisions Relating to National and Member Banks - Part A - General Provisions - Amends Federal law to permit a national bank to make unsecured loans in an amount up to 15 percent of its unimpaired capital and surplus, plus an additional ten percent on the loans fully secured by readily marketable collateral. Permits the Comptroller of the Currency to prescribe rules and regulations defining or further defining terms used in determining when loans or extensions of credit to one person shall be deemed to be loans or extensions of credit to any other person. Repeals existing limits on indebtedness incurred by a national banking association. Amends the Federal Reserve Act to permit a national banking association to make loans secured by liens on interests in real estate. Permits notes representing loans to finance the construction of residential or farm buildings and having maturities of less than nine months to be eligible for a discount as commercial paper within the terms of such Act if accompanied by a valid and binding agreement to advance the full amount of the loan upon the completion of the building. Repeals the authority of a national banking association to act as broker for real estate loans in places with population of 5,000 or less. Allows the Comptroller to issue a certificate of authority to commence the business of banking to a national banking association which is organized solely to do business with other financial institutions if such association is owned exclusively by other depository institutions and is engaged exclusively in providing banking services for other banks. Permits an association to purchase for its own account shares of stock of a national banking association which is organized solely to do business with other financial institutions. Permits actions and proceedings against any national bank for which the Federal Deposit Insurance Corporation has been appointed as receiver to be brought in any district or territorial court of the United States within the district in which such bank is located, or in any State, county, or municipal court having jurisdiction in similar cases, in the county or city in which such bank is located. Authorizes a national bank to open or close, at its discretion, on a legal holiday declared by a State or District of Columbia official, unless the Comptroller directs otherwise. Amends the Depository Institutions Deregulation and Monetary Control Act of 1980 to provide the authority to terminate the closed receivership fund for national banks which have been closed and for which the Comptroller has appointed a receiver other than the Federal Deposit Insurance Corporation. Adds to such Act a Part C - Disposition of Unclaimed Property Recovered from Closed National Banks. Sets forth the procedures for disposition of unclaimed property in the possession, custody, or control of the Comptroller which was recovered from closed national banks. Authorizes the Comptroller to issue rules and regulations necessary to appropriate to carryout such disposition. Banking Affiliates Act of 1982 - Amends the Federal Reserve Act to permit a member bank to engage in any credit or investment transaction with bank or nonbank affiliates, so long as the member bank and its affiliates are 80 percent owned by the same bank or bank holding company. Sets forth limitations on transactions between a member bank and its holding company. Exempts financial institutions with less than a specified amount of total deposits from the reserve requirements of the Monetary Control Act of 1980. Declares that no national bank shall be subject to any visitorial powers except as authorized by Federal law, vested in the courts of justice, or exercised or directed by Congress. Permits State auditors to review bank records for compliance with State unclaimed property or escheat laws, but only upon reasonable cause to believe a bank has not complied. Permits a national banking association that holds real estate that, since December 31, 1979, has not been valued on its books for more than a nominal amount, to continue to hold such real estate for the length of time a State chartered bank would be permitted by the law of the State in which the association is located. Part B - Financial Institutions Regulatory Act Amendments - Amends the Federal Reserve Act to eliminate size limits on loans to executive officers of member banks for real estate loans and loans for children's education and authorizes the Federal banking agencies to determine the limit on other loans. Amends the Federal Reserve Act to repeal the reporting requirements on all loans made by a bank to its executive officers. Requires the prior approval of the board of directors of a bank in the case of loans to executive officers, directors, and principal shareholders or their related interest aggregating more than a specified amount. Amends the Federal Deposit Insurance Act to exclude any foreign bank having an insured branch in the United States from provisions of such Act relating to loans, extensions of credit, and other dealings between member banks and their affiliates. Applies such provisions to the insured bank itself. Amends the Federal Reserve Act, the Home Owners' Loan Act, the Bank Holding Company Act of 1956, and the Bank Holding Company Act Amendments of 1970 to permit the agency having authority to impose a civil monetary penalty under such Act to compromise, modify, or remit, in its discretion any civil monetary penalty which is subject to imposition or has been imposed under such authority. Provides for the removal of a management official of a federally chartered or federally insured depository institution for a violation of the Depository Institution Management Interlocks Act. Revises the reporting requirements of the Bank Holding Company Act Amendments of 1970 relating to loans received from banks maintaining correspondent accounts. Revises the reporting requirements of the Federal Deposit Insurance Act relating to the disclosure of material facts. Title V: Amendments to the Federal Credit Union Act - Amends the Federal Credit Union Act to permit boards of directors to establish the par value of shares. Permits the investment and reinvestment of such portions of the annual operating fees deposited as are not needed for current operations. Requires such investments to be made only in interest bearing securities of the United States. Permits the National Credit Union Association Board to set maximum maturity limits on real estate loans. Eliminates the requirement that the sales price of real estate be not more than 150 percent of the median sales price of residential real property situated in the geographical area of the property's location. Permits a Federal credit union to refinance a mortgage. Increases the amount which directors and credit union committee members can borrow without Board approval. Permits a Federal credit union on a first or second mortgage loan to require that any partial prepayments be: (1) made on the date monthly installments are due; and (2) in the amount of that part of one or more monthly installments which would be applicable to principal. Permits a Federal credit union to make investments in obligations of, or issued by, any State or political subdivision except that no credit union may invest more than ten percent of its unimpaired capital and surplus in the obligations of any one issuer. Permits Federal credit unions to make deposits in banks or institutions whose accounts are insured by the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation. Permits a credit union to provide money transfer services. Permits annual meetings of each Federal credit union to be held whenever its bylaws shall prescribe (presently they must be held in January, February, or March). Makes a credit committee optional for a credit union, rather than mandatory. Requires dividends to be paid on all funds in the regular share account once a full share has been purchased, if the par value of a share exceeds five dollars. Permits the board of directors of a Federal credit union, by majority vote of a quorum of directors, to adopt a policy with respect to expulsion from membership based on nonparticipation by a member in the affairs of the credit union. Declares that any central credit union chartered by the Board shall be subject to the rules, regulations, and orders of the Board and shall be vested with or subject to the same rights, duties, liabilities, and limitations that would apply to all Federal credit unions. Declares that approval of a proposition for conversion from Federal to State credit union, or vice versa, shall be by the affirmative vote of a majority of the members of the credit union who vote on the proposal. Provides for equal insurance treatment of state and Federal credit unions when both have funds deposited in a Federally insured credit union. Eliminates partial year National Credit Union Administration insurance premiums and rebates. Permits the National Credit Union Administration Share Insurance Fund to borrow from the Central Liquidity Facility. Authorizes the Central Liquidity Facility to act, upon the request of the Board of Governors of the Federal Reserve System, as an agent of the Federal Reserve System in matters pertaining to credit unions. Requires the National Credit Union Administration Board to study the feasibility and desirability of permitting Federal credit unions to compensate members of their boards of directors. Title VI: Property, Casualty, Life Insurance Activities of Bank Holding Companies - Amends the Bank Holding Company Act of 1956 to prohibit bank holding companies and their subsidiaries from selling insurance as principals, agents, or brokers except: (1) where the insurance secures an extension of credit in the event of death, disability, or the involuntary unemployment of the debtor; (2) where the insurance is declining balance credit property insurance, sold by a subsidiary finance company, to protect against loss or damage to collateral security an extension of credit of $10,000 or less (adjusted by the Consumer Price Index with 1982 as the base year); (3) any insurance agency activity in a community of less than 5,000 or which has inadequate insurance agency facilities; (4) any insurance agency activity lawfully engaged in by a bank holding company on May 1, 1982; (5) certain supervisory activity over agents who sell insurance covering a holding company's property and employees; (6) any insurance agency activity, except the sale of unauthorized life insurance or annuities, conducted by a bank holding company or its subsidiary which has less than $50,000,000 in total assets; and (7) any insurance activity of a registered bank holding company which engaged in such activities, with Federal Reserve Board approval, before January 1, 1971. Title VII: Miscellaneous - Amends the Truth in Lending Act to exempt loans made, insured, or guaranteed pursuant to the Higher Education Act of 1965 from the provisions of such Act. Exempts arrangers of credit from the provisions of the Truth in Lending Act. Amends the Federal Deposit Insurance Act to make industrial banks eligible for FDIC insurance. Amends the International Banking Act of 1978 to redefine the term "domestically-controlled affiliate covered in 1978". Makes States and local governments eligible for NOW accounts. Amends the Federal National Mortgage Association Charter Act to permit the Association to have preferred stock on such terms and conditions as the board of directors shall prescribe. Amends the Federal Reserve Act to change the phase-in date for reserve requirements from July 1, 1979, to March 31, 1980. Amends the Bank Service Corporation Act to permit an insured bank to invest not more than ten percent of paid-in and unimpaired capital and unimpaired surplus in a bank service corporation. Limits such investment to no more than five percent of the insured bank's total assets. Sets forth the activities that a bank service corporation may perform for depository institutions and for other persons. Requires prior approval by a bank's appropriate Federal banking agency for investments in bank service corporations. Prohibits bank service corporations from unreasonably discriminating in the provision of any services to any depository institution that does not own stock in it because such nonstockholding institution competes with a stock-owning institution. Subjects a bank service corporation to examination and regulation by the appropriate Federal banking aency of its principal investor, to the same extent as such investor. Amends the Neighborhood Reinvestment Corporation Act to permit a director who is necessarily absent from a meeting of the board to participate in such meeting through a duly designated representative. Designates the building known as the Federal Reserve Board Building, in Washington, D.C., as the Marriner S. Eccles Federal Reserve Board Building. Requires the Federal Deposit Insurance Corporation, the Federal Savings and Loan Insurance Corporation, and the National Credit Union Administration Board to each study: (1) the current system of deposit insurance; (2) the feasibility of providing depositors the option to purchase additional deposit insurance covering deposits in excess of the general limit provided by law and the capabilities of the private insurance system, either directly or through reinsurance, to provide risk coverage in excess of the general statutory limit; (3) the feasibility of basing deposit insurance premiums on certain risks; (4) the impact of expanding coverage; (5) the feasibility of revising the deposit insurance system to provide greater protection to small depositors and greater discipline to large depositors; (6) the adequacy of existing public disclosure regarding insured depository institutions; (7) the feasibility of consolidating the three separate insurance funds; and (8) other related issues. Title VIII: Alternative Mortgage Transactions - Alternative Mortgage Transaction Parity Act of 1982 - Authorizes all housing creditors to make, purchase, and enforce alternative mortgage transactions provided the transactions are authorized by, and in accordance with, regulations governing alternative mortgage transactions issued by: (1) the Comptroller of the Currency for national banks (with respect to banks); (2) the National Credit Union Administration Board for Federal credit unions (with respect to credit unions); or (3) the Federal Home Loan Bank Board for federally chartered savings and loan associations (with respect to all other housing creditors). Defines an "alternative mortgage transaction" as a loan or credit sale which is secured by real property, a dwelling, all stock allocated to a cooperative unit, or a manufactured home and which involves other than a traditional fixed-rate, fixed-term transaction. Allows housing creditors to make such transactions notwithstanding any State constitution, law, or regulation, unless the voters of a State approve a provision stating that such State does not want the provisions of this title to apply to transactions subject to laws of that State.