SunTrust to pay nearly $1 billion to settle mortgage abuse charges
June 18, 2014
SunTrust Mortgage Inc. has agreed Tuesday to pay $968 million to settle charges of mortgage origination, servicing, and foreclosure abuses.
The joint agreement is the result of investigations by federal agencies – including the Department of Justice, Department of Housing and Urban Development, and Consumer Financial Protection Bureau – and 49 state attorneys general across the country.
“SunTrust’s conduct is a prime example of the widespread underwriting failures that helped bring about the financial crisis,” Attorney General Eric Holder said. “We expect that there will be more cases like this to come.”
SunTrust is required to provide $500 million in consumer relief for homeowners.
The payment will provide relief over the next three years to homeowners for reducing the principal on mortgages for borrowers that may default, reducing mortgage interest rates for homeowners who are current on their payments but underwater on their mortgages, and providing other relief.
SunTrust will also pay $50 million in cash to compensate consumers for its servicing practices.
“Deceptive and illegal mortgage servicing practices have pushed families into foreclosure and devastated communities across the nation,” said Richard Cordray, director of the bureau. “Today’s action will help homeowners and consumers harmed by SunTrust’s unlawful foreclosure practices.”
Fine for violating FHA requirements
In addition, SunTrust has agreed to pay $418 million for making loans that violated its obligations as a participant in the Federal Housing Administration insurance program.
SunTrust admitted that between January 2006 and March 2012, it made FHA-insured mortgages that didn’t meet FHA requirements, that it failed to carry out a program to identify non-compliant loans, and that it failed to report to HUD the defective loans it did identify.
SunTrust also admitted that audits and other documents given to its management between 2009 and 2012: (1) described significant flaws in the company’s loan processes, and (2) said that 50 percent or more of SunTrust’s FHA-insured mortgages didn’t comply with FHA requirements.
Changes to mortgage procedures
The joint federal-state agreement also requires SunTrust to carry out changes in how it services mortgage loans, handles foreclosures, and ensures the accuracy of information provided in federal bankruptcy court. The agreement requires new servicing standards that will prevent foreclosure abuses of the past, such as robo-signing, improper documentation, and lost paperwork.
The new servicing standards specify that foreclosure is a last resort by requiring SunTrust to evaluate homeowners for other options first. In addition, SunTrust can’t foreclose on a homeowner while he or she is being considered for a loan modification.
The new standards also include procedures and timelines for reviewing loan modification applications and give homeowners the right to appeal denials. SunTrust will also be required to simplify the process for homeowners needing help by creating a single point of contact for borrowers seeking information about their loans and maintaining adequate staff to handle calls.
Independent monitor
The agreement will be overseen by an independent monitor who is authorized to impose penalties on SunTrust if it violates the agreement and who will regularly issue public reports on SunTrust’s compliance.
SunTrust is the home lending-arm of Atlanta’s SunTrust Banks Inc., a large U.S. southeast regional bank.
The servicing portions of the agreement are modeled after the $25 billion National Mortgage Settlement reached in February 2012 by the federal government, 49 state attorneys general, and the District of Columbia’s attorney general and the five largest national mortgage servicers.
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