The Real Deal New York

More small banks to face crisis-era mortgage investigations

Settlements with big banks frees regulators to focus on smaller institutions
May 28, 2014 02:45PM

Following series of mortgage-related settlements with too-big-to-fail banks, some less substantial lenders may soon find they are not too small to scrutinize.

Regulators are preparing to investigate the mortgage lending practices and loan services of more small and mid-sized banks in the years before the housing bubble burst. Housing officials now have the manpower to place these smaller institutions under the microscope with the backlog of cases against larger banks largely cleared, a government official told the Wall Street Journal.

“Settling with the large guys gave [the government] a template,” Eric Wasserstrom, an equities analyst with SunTrust Robinson Humphrey, told the Journal.

Federal investigators are trying to determine whether loans submitted to the Federal Housing Administration for insurance against default from these smaller institutions met underwriting standards, the Journal reports.

A number of mid-sized banks have already disclosed that their loan origination and servicing operations in the lead up to the financial crisis are being investigated by federal authorities. They include Fifth Third Bancorp, SunTrust Banks and Regions Financial Corp. [WSJ]Tom DiChristopher