A third lending agency, which often lends somewhat more than the insurance company, is the savings bank. The type known as mutual savings banks, found principally in the East, invest heavily in mortgages on homes.

Applications for mortgage loans are made to the real-estate department of the bank or, where no separate department has been created, to the officer appointed to pass on such applications. Appraisal methods vary. Frequently an officer or committee of the bank visits the property and determines its value by personal inspection. Under normal conditions the valuation reached is not ordinarily greatly below the market value.

In making real-estate loans savings banks are generally restricted by state laws which fix the maximum percentage of property value that they may lend. In some states this maximum is 50 per cent; in others it is as high as 60 per cent. These laws, however, do not necessarily determine whether a bank's lending policy shall be liberal or conservative.

A bank located in a state permitting the higher ratio of mortgage loan to value may be unwilling to lend up to the legal limit or may regard existing prices as inflated and fix an appraisal value well under the selling price. One restricted to 50 per cent loans may, however, appraise property at the full selling price, and advance as much or more money on a given home than the bank operating under the more liberal statute, whose policies or appraisal methods are more conservative.

Savings bank loans are frequently made for short terms - for periods of one, three, and five years - and are repayable in full at the end of the term. An increasing number of banks are making long-term loans, however, which are repayable in installments similar to those of building and loan associations, which are discussed later, and of some of the life-insurance companies. Banks making the short-term "straight" loans are usually willing to renew, but some of them make a charge for granting this privilege. Where there has been undue depreciation of the property, such as would result from the owner's failure to keep it in repair, or where its value has been lessened through changes in the character of the neighborhood, difficulty may be encountered in renewing the loan, at least in its full amount.

A number of savings banks do not lend for construction purposes, regarding these loans as a greater risk than those predicated on the security afforded by an existing building. Undoubtedly there is a larger element of risk unless special precautions are taken. The home builder or his contractor may build the house of materials inferior to those called for in the plans and specifications on which the loan is based, or, through ignorance or a desire to economize, may construct it poorly. Under such circumstances the bank may find itself holding a mortgage on a home for a sum which it would not consider lending if the loan were applied for on the complete property. Banks making construction loans usually require the owner or contractor to furnish a bond guaranteeing the completion of the building according to plan, or advance the loan money in installments as the work progresses and is inspected. Few losses are suffered where such methods are followed.

It is possible for the home builder to finance through many savings banks which do not make building loans, by obtaining credit from building-material dealers for the construction period and using his available cash to pay the labor cost. The bank then lends on the completed structure and the building material is paid for with the loan funds.

Home-owners who want their loans to run five years or more frequently find that the local savings bank makes its loans payable on demand or advances funds for periods of but one, two, or three years, and homeowners who wish to amortize their loans often are unable to borrow from a savings bank on this basis. Officials of some banks restrict their loans to short terms because they feel that mortgage investments can not be readily converted back into cash in case the institution needs the funds, and therefore, plan to have these loans fall due at comparatively short intervals. Many savings banks make loans for terms of five years or longer, however, and report that they can sell such mortgages readily when funds are needed. Some savings banks and other banks which sell their loans feel that they can not put them on an amortization basis, since the investors buying them do not wish to accept small payments on the principal, but a number of the institutions are solving this problem by retaining the mortgages and selling investment certificates issued against them. These banks receive the amortization payments on the various obligations, reloan them, and add new mortgages to the group behind the certificates to keep the security constant.