Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA)

What Is the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA)?

The Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) is a law that modified the federal government agency structure and rules overseeing the U.S. savings and loan banking system and the real estate appraisal industry, passed in 1989 in response to the savings and loan crisis of the late 1980s.

A portion of the major changes enacted with the law:

• Regulations to guarantee that real estate appraisals are performed enough. This incorporates requirements for full and accurate documentation and for the training of appraisers and their supervisors.
• Transitory creation of the Resolution Trust Corp. to determine the situation with the country's failed savings and loan institutions.
• Abolishment of the Federal Savings and Loan Insurance Corporation and the creation of the Federal Deposit Insurance Corporation's funds: the Savings Association Insurance Fund (SAIF) to cover S&Ls and the Bank Insurance Fund (BIF) to cover banks.
• Abolishment of the Federal Home Loan Bank Board and the creation of two agencies to replace it: the Federal Housing Finance Board (FHFB) and the Office of Thrift Supervision (OTS).

Figuring out the FIRREA

FIRREA was the government's response to a crisis brought about by dangerous investment practices by a lot of people of the country's savings and loan institutions. Not at all like the big multi-administration banks, savings and loans, or "thrifts" as they are in some cases called, were community-based businesses that focused on passbook savings and mortgages.

Numerous thrifts employed weak real estate investment requirements, and federal agency oversight failed to perceive the problem wasn't discovered until it was too late. The savings and loans invested vigorously in hazardous mortgages, which lost everything in the mid 1980s.

About half of the savings and loans left business somewhere in the range of 1986 and 1995, when the Resolution Trust Corp. completed its task of discarding the leftover assets to repay depositors.

After FIRREA

By 2013, less than 1,000 savings and loans stayed in operation. Because of FIRREA, the differences among S&Ls and banks have diminished altogether.

The purpose of the act was to make a more efficient, useful, and effective base on which to build the industry and defend future transactions. It brought about sensational changes to the savings and loan industry and its federal guideline, including deposit insurance.

As indicated by the FDIC, as of Dec. 31, 2021, there were just 608 FDIC-protected S&Ls in the U.S., compared to 4,231 FDIC-safeguarded commercial banks.

The changes must be related with a snowstorm of abbreviations connected to federal agencies made or nullified:

1. The Federal Home Loan Bank Board (FHLBB) was canceled.
2. The Federal Savings and Loan Insurance Corporation (FSLIC) was canceled, and all assets and liabilities were assumed by the FSLIC Resolution Fund administered by the Federal Deposit Insurance Corp. (FDIC) and funded by the Financing Corporation (FICO).
3. The Office of Thrift Supervision (OTS), a bureau of the U.S. Treasury Department, was made to charter, regulate, inspect, and direct savings institutions.
4. The Federal Housing Finance Board (FHFB) was made as an independent agency to replace the FHLBB as administrator of the 12 Federal Home Loan Banks.
5. The Savings Association Insurance Fund (SAIF) took the place of the FSLIC as a continuous insurance fund for thrift institutions. (Like the FDIC, it guaranteed savings and loan accounts up to $100,000). SAIF is administered by the FDIC.

Other FIRREA Initiatives

FIRREA gave Freddie Mac and Fannie Mae extra responsibility and funding for making homeownership more available for low-and moderate-pay families. It likewise made the Bank Insurance Fund (BIF). Both the Savings Association Insurance Fund (SAIF) and the Bank Insurance Fund (BIF) were to be administered by the FDIC, however the Federal Deposit Insurance Reform Act of 2005 merged the two funds.

FIRREA likewise permitted bank holding organizations to get thrifts.

FIRREA and Real Estate Appraisals

FIRREA laid out new capital hold requirements and increased public oversight of the real estate appraisal process.

It laid out the Appraisal Subcommittee (ASC) inside the Examination Council of the Federal Financial Institutions Examination Council.

Likewise, it expected agencies to issue the ratings of the Community Reinvestment Act (CRA) publicly and to do written performance assessments, utilizing facts and data to support the agencies' decisions.

Features

• In accordance with FIRREA, new federal regulations were adopted for the two savings and loan institutions and real estate appraisal experts.
• In addition to other things, FIRREA set standards and rules for appraisals.
• FIRREA made civil enforcement authority to applicable agencies to impose huge enforcement punishments for infringement.
• The utilization of FIRREA as an enforcement tool has developed starting around 2015 and is expected to increase under the Biden Administration.