SunTrust Mortgage Inc. has agreed to settle allegations it violated government-insured lending policies and used unacceptable servicing and foreclosure practices.
An announcement Tuesday from the Department of Justice indicated that SunTrust has agreed to a $968 million settlement that addresses abuses in loan origination, mortgage servicing and foreclosure processing.
The settlement is the culmination of “extensive investigations” conducted by the Justice Department, the Department of Housing and Urban Development and its Office of Inspector General, the Consumer Financial Protection Bureau and 49 state attorneys general.
The announcement said that $418 million will resolve liability under the federal False Claims Act for loans it originated and underwrote between 2009 and 2012 that were insured by the Federal Housing Administration. In addition to violating FHA policies, it failed to maintain an adequate quality control program.
The Richmond, Va.-based company reportedly also didn’t notify HUD when it did identify defective loans. Management was reportedly alerted that as many as half of SunTrust’s FHA originations were non-compliant.
“For example, a 2012 internal SunTrust document noted two ‘significant’ issues that had been plaguing the company for years — a ‘broken loan origination process’ coupled with a ‘deficient government insuring process,'” the announcement said. “Other reports received by SunTrust management described its quality control program as ‘severely flawed’ and ‘ineffective.’ These reports described to management that the volume of problems in the program was ‘excessive,’ and that the error rates were ‘elevated’ and at an ‘unacceptable level.'”:
Another $500 million will go towards borrower relief for servicing and foreclosure abuses. This part of the settlement parallels the national mortgage servicer settlement reached in February 2012 with the nation’s biggest servicers. The government speculated that actual relief will exceed $500 million since SunTrust can’t claim credit for each dollar in relief.
Another $50 million in cash will be paid to redress servicing practices of which $40 million will be distributed to borrowers and homeowners.
As part of the deal, SunTrust has agreed to implement significant changes in its servicing and foreclosure practices and in the way it handles bankrupt accounts.
The agreement will be filed as a consent judgment in U.S. District Court for the District of Columbia.
“The agreement does not prevent state and federal authorities from pursuing criminal enforcement actions related to this or other conduct by SunTrust, or from punishing wrongful securitization conduct that is the focus of the Residential Mortgage-Backed Securities Working Group of President Barack Obama’s Financial Fraud Enforcement Task Force,” the statement said. “The agreement does not prevent the CFPB from pursing civil enforcement actions against SunTrust for violations of the CFPB’s new mortgage servicing rules that took effect on Jan. 10, 2014.”
The announcement did not address a Justice Department investigation disclosed in February by parent SunTrust Banks Inc. That investigation centers on loans sold to Fannie Mae and Freddie Mac.
