Increasingly worried about the health of mid-sized regional banks with less than $100 billion in assets, the Federal Reserve is working on an expansive review of the commercial real estate loan portfolios of these banks, with expectations that large losses in this asset category could still be coming, according to people familiar with the central bank.

As part of the examination, some banks are being asked to perform a commercial real estate analysis of their assets, according to one banking attorney who said a client of his has been asked to conduct such a review.

Consumer credit dropped like a rock in July on a mix of tight supply, weak demand, and charge-offs of bad debt.

The U.S. Federal Reserve reported consumer credit fell by $21.6 billion, well below the $15.5 decrease recorded in June, marking a 10.4% annualized drop.

Numerous reports have indicated that banks have tightened their lending standards. A recent survey by the Fed found that bank lending is expected to be tight through the first half of 2010. Even though the economy has been warming, banks like Citigroup, Bank of America and Wells Fargo have continued to play hard-ball with their lending practices.

NEW YORK, Sept 2 (Reuters) – The U.S. Mortgage Bankers Association said on Wednesday it will ask Congress to transform mortgage lenders Fannie Mae, Freddie Mac into several smaller, privately held companies that would issue mortgage securities with a government guarantee.

The new companies would guarantee the securities against defaults on underlying mortgages and pay fees into a federal insurance fund that would make good on interest and principal payments to bondholders if the companies were unable to make them.