Three U.S. federal agencies and two associations of state regulators have announced they will cooperate to conduct targeted compliance reviews of selected non-depository lenders with significant subprime mortgage operations.

The pilot project is scheduled to begin in the fourth quarter and will focus on non-depository subsidiaries of bank and thrift holding companies, as well as mortgage brokers doing business with, or working for, these entities. Additionally, the states will conduct coordinated examinations of independent state-licensed subprime lenders and their associated mortgage brokers.

The agencies involved are the Board of Governors of the Federal Reserve System, the Office of Thrift Supervision, the Federal Trade Commission, and state agencies represented by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators. By joining together, the agencies believe they will be better positioned to evaluate and more consistently assess subprime mortgage lending practices across a broad range of mortgage lenders and other participants within the industry.

The agencies will select a sample of entities for review or investigation. They will evaluate the companies’ underwriting standards, as well as senior management oversight of the risk-management practices used for ensuring compliance with state and federal consumer protection regulations and laws. The agencies will initiate appropriate corrective or enforcement action as warranted by the findings of the reviews or investigations.

At the conclusion of the reviews, the agencies will analyze the results and determine whether the project is to be continued. If so, they will determine the focus of future reviews at that time.