Building and Loan Associations (B&Ls): Definition, Operations, and Impact on Homeownership

Building and loan associations (B&Ls), or thrifts, originated from collective financial endeavors where individuals contributed membership fees and subscribed to shares with predetermined maturity values. Members committed to monthly payments until shares matured, facilitating access to mortgage loans. For example, with five shares each valued at $600, an individual could borrow up to $3,000. Acquiring loans often involved competitive bidding due to capital constraints. Even after loan acquisition, members continued share payments until fulfillment.

B&Ls predominantly adopted a share-accumulation model, with members purchasing shares to secure home purchases. Initially structured as “terminating” plans that concluded upon loan repayment, B&Ls transitioned to “serial plans,” issuing new shares periodically with distinct termination dates. This evolution led to “permanent plans,” facilitating flexible membership enrollment.

Influenced by British building societies during the Industrial Revolution, B&Ls emerged in the United States in 1831, pioneered by two factory workers in Philadelphia. These local cooperatives proliferated across the Northeast and Mid-Atlantic by the 1870s, fueled by rising skilled labor incomes. Despite economic downturns, B&Ls flourished, peaking in 1927 with over 12,000 associations serving 11 million members.

Traditional bank loan requirements, characterized by substantial down payments and short repayment periods, hindered middle-class homeownership. B&Ls circumvented these obstacles, allowing members to purchase shares and borrow against their value for real estate acquisitions. This facilitated homeownership among skilled laborers lacking upfront capital but possessing increased earnings potential.

Amid the Great Depression’s upheaval, B&Ls faced financial strain, prompting government intervention. Federal charters for savings and loan (S&L) institutions were introduced, offering critical support. Provisions from the Federal Home Loan Bank Board enabled cash-strapped S&Ls to access capital, while the Federal Savings and Loan Insurance Corporation (FSLIC) provided deposit guarantees, stabilizing thrifts amidst economic turmoil.

B&Ls offered accessible home loans through member contributions and shared dividends, while banks had stricter loan requirements.

The Great Depression and financial strain led to the transition of B&Ls into federally regulated S&L institutions.

B&Ls facilitated middle-class homeownership by providing alternative financing options with manageable repayment terms.