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Table of Contents

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 revised the federal government agency structure and rules governing 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.

Some of the major changes enacted with the law:

  • Regulations to ensure that real estate appraisals are performed adequately. This includes requirements for full and accurate documentation and for the training of appraisers and their supervisors.
  • Temporary creation of the Resolution Trust Corp. to resolve the status of the nation'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).

Key Takeaways

  • Pursuant to FIRREA, new federal regulations were adopted for both savings and loan institutions and real estate appraisal professionals.
  • FIRREA created civil enforcement authority to relevant agencies to impose significant enforcement penalties for violations.
  • The use of FIRREA as an enforcement tool has grown since 2015 and is expected to increase under the Biden Administration.
  • Among other things, FIRREA set standards and rules for appraisals.

Understanding the FIRREA

FIRREA was the government's response to a crisis caused by risky investment practices by many of the nation's savings and loan institutions. Unlike the big multi-service banks, savings and loans, or "thrifts" as they are sometimes called, were community-based businesses that concentrated on passbook savings and mortgages.

Many thrifts employed weak real estate investment requirements, and federal agency oversight failed to recognize the problem wasn't discovered until it was too late. The savings and loans invested heavily in risky mortgages, which went bust in the early 1980s.

About half of the savings and loans went out of business between 1986 and 1995, when the Resolution Trust Corp. completed its task of disposing of the remaining assets in order to reimburse depositors.


By 2013, fewer than 1,000 savings and loans remained in operation. As a result of FIRREA, the differences between S&Ls and banks have decreased significantly.

The purpose of the act was to create a more efficient, productive, and effective base on which to build the industry and safeguard future transactions. It resulted in dramatic changes to the savings and loan industry and its federal regulation, including deposit insurance.

According to the FDIC, as of Dec. 31, 2021, there were only 608 FDIC-insured S&Ls in the U.S., compared to 4,231 FDIC-insured commercial banks.

The changes can only be related with a blizzard of acronyms attached to federal agencies created or abolished:

  1. The Federal Home Loan Bank Board (FHLBB) was abolished.
  2. The Federal Savings and Loan Insurance Corporation (FSLIC) was abolished, 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 created to charter, regulate, examine, and supervise savings institutions.
  4. The Federal Housing Finance Board (FHFB) was created as an independent agency to take the place of the FHLBB as overseer of the 12 Federal Home Loan Banks.
  5. The Savings Association Insurance Fund (SAIF) took the place of the FSLIC as an ongoing insurance fund for thrift institutions. (Like the FDIC, it insured savings and loan accounts up to $100,000). SAIF is administered by the FDIC.

Other FIRREA Initiatives

FIRREA gave Freddie Mac and Fannie Mae additional responsibility and funding for making homeownership more accessible for low- and moderate-income families. It also created 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, but the Federal Deposit Insurance Reform Act of 2005 consolidated the two funds.

FIRREA also allowed bank holding companies to acquire thrifts.

FIRREA and Real Estate Appraisals

FIRREA established new capital reserve requirements and increased public oversight of the real estate appraisal process. 

It established the Appraisal Subcommittee (ASC) within the Examination Council of the Federal Financial Institutions Examination Council.

In addition, it required agencies to issue the ratings of the Community Reinvestment Act (CRA) publicly and to do written performance evaluations, using facts and data to support the agencies' conclusions.

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  1. FDIC. "Statistics at a Glance."