Merchants Bank Sees Mortgage Fraud Problems Improvements

Merchants Bank of Indiana revealed it had fewer bad loans attributable to mortgage fraud in its most recent quarter.

The regional bank wrote down about $30 million in loans in the third quarter, citing declines in multifamily valuations and ongoing investigations into borrowers suspected of mortgage fraud.

This marked an improvement from last quarter, when Merchants revealed it wrote down $46.1 million in loans, making it one of the first banks to acknowledge problems pertaining to an ongoing investigation into commercial mortgage fraud.

Merchants reported its third-quarter earnings on Wednesday. They come during a time when regional banks are hoping to calm the market’s nerves. A number of regional players’ stock prices fell after banks Zions Bancorp and Western Alliance revealed earlier this month exposure to tens of millions of dollars in bad loans related to an alleged fraud scheme.

The bank stocks have since recovered and both Zions and Western Alliance reported no other credit issues in their earnings reports last week.

But Merchants Bancorp, with about $20 billion in assets, has exposure to multiple borrowers who are under investigation or pleaded guilty to mortgage fraud. In the most recent quarter, the bank said its write-downs related to nine relationships.

Notably, the bank lent to Moshe Silber and Aron Puretz, both currently in prison for their role in unrelated mortgage fraud schemes. Merchants recently revealed in court filings it made seven loans to Silber and is owed $61 million related to properties backing those loans. The bank also lent to other troubled borrowers, including the late Mendel Steiner and Tzadik Management.

Merchants’ third-quarter earnings show both improvements as well as some lingering concerns about its loan book.

On the positive side, the bank reported a $31.0 million provision for credit losses on loans for the third quarter, a 43 percent decline from the second quarter of 2025.

On the negative side, Merchants still had nearly $30 million in write-downs in the third quarter, compared to $2.1 million in the same period last year.

The bank also saw an uptick in loan delinquencies, which increased to $336.2 million in the third quarter from $270 million the previous quarter. It claimed the uptick in delinquencies was primarily related to one unnamed multifamily relationship.

Deciphering Merchants’ exposure to bad landlords is challenging because it has completed billions of dollars in loan securitizations and credit risk transfers. The transactions are intended to reduce Merchants’ credit risk.

But of the $336.2 million in delinquent loans, the bank said only $45.7 million are “partially protected under credit risk transfer transactions.” In other words, a majority of the delinquent loans have not been transferred off the bank’s balance sheet.

“Asset quality trends improved, with lower provision expenses and reduced criticized assets during the quarter,” said Michael Dunlap, president and COO of Merchants, in a statement announcing its earnings. “Combined with strong liquidity, core deposit growth, and effective capital management, we are confident in our ability to deliver sustainable performance and capitalize on additional market opportunities.”