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The significance of the new secondary market is obvious. Savings and loans are simply no longer the only or dominanı source of fund. ing for home financing, and they are no longer critical to mortgage organization. There is, indeed, no evidence to suggest that the sav. ings and loan industry as now constituted — or the thrift industry in general – is necessary to maintain a viable home mortgage markec Consequendy in terms of home morgage financing. There is no rea. son why savings and loans should not be permiaed to make signifi. cant amouncs of direct investmenos.

In view of the powerful reasons why direct investments are neces. sary for the financial health of the savings and loan industry, only overwhelming evidence of imminent and acute risk from direct invesumenis could racionally justify the Proposed Rule. Professor Benston's study, with which I concur, demonstrates thac che Board's as. sumptions are apparendy without foundation and that the Proposed Rule could seriously harm the savings and loan industry. - Thus, the Proposed Rule is, in my opinion, unsound in principle and unsupponed by the evidence.

I understand thar Lincoln Savings and Loan Association has re. quested that the Board allow me to meet with it or ics staff in order to discuss my view that the Proposed Rule is una arranted and could prove harmful if put into effect I hope that the Board will agree to such a meeting, and I am prepared to meet with the Board or its appropriate staff members in Washington at the earliest possible ume.

I appreciate this opportunia to express my opinion about che Proposed Rule. and I hope that the Board will give me the opportunin to discuss the issue a'ich it further before it reaches a final decision in this maner.

Very truly your...

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Apparently the PHLB Bank of San Francisco leaked the closing of the Bass deal, the purchase of PCA in Stockton, California. So Bass has cancelled his preempted announcement. However, there will be private signing in Washington with Danny Wall on January 28 at the PHLBB. It will be closed to all except you and Congressman Lehman, if you want to attend. There will be a future public ceremony in Stockton.

If you would like to put a statement in the press kit
of the PHLBB, I'll have Murray contact Carl Hoyle at the
PHLBB. Only you and Congressman Lehman will be permitted to
have press statements in the Press Kit.

Mr. Bass 18 available to meet with you anytime early next year to discuss theirt issues at your convenience.

ps.

u I talked to Lokelameth - suggested ove set up a

meeting early sext year with Fsue fohin.

&
(2) I talked to Kelly eek, Cony Gonzales

staff - ke said he would call ene
7#LBB-re Cark Hagle flory Affairs and
indicate they have no problem

auch the sake of Len coln
(3) The Ban Group may do e public event

a
earlien (ie teulatuvaly Jan?) in Stockton
of you want to partiupate have Jackie
Contact Mary whalen 2026598201

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SPECIAL COUNSEL

alla

MEMORANDUM OF UNDERSTANDING
BETWEEN LINCOLN SAVINGS AND LOAN ASSOCIATION

AND THE FEDERAL HOME LOAN BANK BOARD

This memorandum is dated as of February

1988,

by and between the Federal Home Loan Bank Board ("FHL8B") and Lincoln Savings and Loan Association, Irvine, California

("Lincoln").

WHEREAS, the Federal Home Loan Bank of San

Francisco ("FHLBank

S.F.") commenced an examination of

Lincoln on March 13, 1986, which resulted in a Report of

Examination dated April 20, 1987; Lincoln filed a written response dated June 26, 1987; the office of Enforcement of the FHL8B also began an investigation into certain practices

and transactions at Lincoln in February 1987; and

WHEREAS, Lincoln is in the process of applying with

'the FHLBB for the acquisition of another FSLIC-insured institution that is a member of the Federal Home Loan Bank of Seattle ("FHLBank - Seattle"), and in connection therewith, Lincoln is also applying to transfer its headquarters to the Twelfth FHLBank District and hence, transfer its membership

to FHLBank

Seattle; and

SPECIAL COUNSEL

EX. 562

WHEREAS, Lincoln believes that its March 1986

examination does not present a fair portrayal of the association's current financial condition or operations, but enters into this Memorandum of Understanding in a spirit of regulatory compliance and cooperation in order to resolve all issues outstanding as a result of the March 1986 examination

and the enforcement investigation; and

WHEREAS, in light of Lincoln's transfer of its

FHLBank membership to FHLBank

Seattle, Lincoln and the

FHLBB enter into this Memorandum with the understanding that

a new examination of Lincoln will be undertaken beginning in

March 1988 by examiners from the FHLBank

Seattle; and

WHEREAS, the FHL8B agrees that it will not initiate any proceedings resulting from the March 1986 examination and enforcement investigation, and in full resolution of all issues outstanding between the parties as a result of the March 1986 examination and the enforcement investigation;

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2.

If pursuant to the December 31, 1987 audit of

Lincoln by its auditors or if there is a change in circumstances with respect to any such property for which a specific reserve has been established which makes all or part of such reserve no longer appropriate or which makes the existing reserve inadequate (leche, a sale of the property or an increase or decrease in the value of the property .. Lincoln will appropriately adjust that specific ceserve and will promptly inform the FHLBank Seattle.

3. Lincoln agrees that as long as it holds the following assets (as adjusted by any change pursuant to paragraph 4), it will increase its contingency factor

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