Thrifts — savings and loans institutions that use depositor’s funds to make loans — increased their share of originations of mortgages for one- to four-family homes to 30 percent during the third quarter, compared with 21.5 percent a year ago.

But the savings and loan industry’s enthusiasm for mortgages also had a downside, with profits falling 84 percent to $704 million, according to a report by the Office of Thrift Supervision.

Thrifts booked $4.29 billion in profits during the third quarter a year ago, and $3.83 billion just a quarter ago.

The decline in profit was due to higher loan-loss provisions and losses on sales of loans for thrifts engaged most heavily in originating mortgage for sale on the secondary market, the report said.

The 831 thrifts supervised by OTS originated $185.7 billion in loans during the third quarter, an 8 percent increase from a year ago but down slightly from the $194.6 billion in loans originated in the second quarter.

All told, thrifts were forced to boost loan loss provisions to 0.92 percent of average assets during the third quarter, a sharp increase from 0.38 percent in the second quarter and 0.22 percent a year ago .

“Troubled assets” — loans 90 days or more past due, and repossessed assets — made up 1.19 percent of thrifts’ $1.57 trillion in assets, up from 0.95 percent in the previous quarter and 0.64 percent a year ago.

The number of “problem thrifts” — according to an OTS scoring system based on examinations of their books — increased from five thrifts a year ago to 12 thrifts at the end of the third quarter.

“Despite the difficult environment, I am encouraged that the managers of OTS-regulated institutions are taking the appropriate steps to provide a cushion for the future,” OTS Director John Reich said in a statement accompanying release of the report. Strong capital and higher loan-loss allowances “will serve thrifts well if housing markets weaken further,” he said.

In an Oct. 3 address to the British Bankers’ Association, Reich said thrifts have “a degree of insulation” from volatility in mortgage markets, in part because of access to diverse sources of funding.

These include their broad deposit bases, advances from the U.S. Federal Home Loan Bank System, and liquidity from the ability to sell mortgage loans directly to Fannie Mae and Freddie Mac. Thrifts also tend to have specialized knowledge of their local markets and the deep roots in the communities they serve, Reich said.

Thrifts increased their market share of mortgage originations even as they reduced the percentage of assets invested in one- to four-family mortgage loans to 50.7 percent, down from 54.6 percent one year ago. Of one- to four-family mortgage loans, 7.1 percent were home equity lines of credit, up from 6 percent a year ago.

An estimated 13 percent of thrift’s mortgage originations during the third quarter were adjustable-rate mortgages, down from 26 percent a year ago quarter, but up slightly from 10 percent in the second quarter of 2007.

Those figures track closely to the ARM share for all lenders, which according to monthly surveys by the Federal Housing Finance Board averaged 13 percent in the third quarter, 11 percent in the prior quarter and 19 percent in the third quarter one year ago.

Refinance loans accounted for 44 percent of thrift originations in the third quarter, up from 27 percent in the third quarter one year ago, but down from 48 percent in the prior quarter.

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