Some large regional banks like SunTrust Banks, (NYSE:STI), Regions Financial Corporation (NYSE:RF) and Fifth Third Bancorp (NASDAQ:FITB) appear to be heading into the same mortgage-related abyss from which the nation's top banks have recently emerged.
According to The Wall Street Journal, U.S. regulators are now scrutinizing how regional banks behaved during the subprime crisis, including the quality of loans sold to government entities like the Federal Housing Administration.
Not the first time for these banks
All of these banks have faced investigations into their mortgage-making activities in the past. SunTrust has already forked over more than $1 billion in fines to settle charges lodged against it by the Department of Justice, the Department of Housing and Urban Development, and the Federal Reserve. Both Fannie Mae and Freddie Mac have gotten a pot of money from the Atlanta-based bank, too.
But the investigations aren't over yet for SunTrust. In February, the bank disclosed more probing by the DOJ over faulty loans the bank sold to Fannie and Freddie. SunTrust noted that it expected to face "substantial penalties" pursuant to these inquiries.
Last November, both Regions and Fifth Third revealed ongoing examinations of their own mortgage practices, specifically by the FHA. Regions noted that it had also been subpoenaed by HUD in regards to loans the banks originated and sold to the FHA.
Around the same time, Fifth Third agreed to pay Freddie Mac $25 million to resolve repurchase claims over loans that the bank had sold to the agency back in 2009. Apparently reading the writing on the wall, Fifth Third increased its litigation reserves in the fourth quarter of last year by $69 million.
More fines and settlements on the way
The WSJ article notes that an analyst with SunTrust commented that the government has gained expertise in its handling of such cases with the biggest banks, giving it a "template" to use with other institutions. SunTrust, as its February announcement noted, clearly expects to pay more fines in the future.
It is very likely that SunTrust won't be alone. As government regulators have shown, they have become adept at finding problems to pursue, and have extracted some amazingly hefty fines from banks in the process.
While the regional banks may not have the deep pockets of their TBTF cousins, they certainly contributed their share of fuel to the subprime meltdown. Now, it appears, it is their turn to pay the piper.
Amanda Alix has no position in any stocks mentioned. The Motley Fool owns shares of Fifth Third Bancorp. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.