The U.S. Department of Justice (DOJ), plus several federal and state agencies, announced on Tuesday a $968 million settlement agreement with SunTrust Mortgage, Inc. for mortgage and home foreclosure abuses. The other agencies involved in the agreement include the Department of Housing and Urban Development (HUD), the Consumer Financial Protection Bureau (CFPB), 49 state attorneys general, and the District of Columbia’s attorney general.
The agreement had first been presented in October 2013. Terms of the settlement agreement require SunTrust pay $500 million in relief directly to homeowners and borrowers during the next three years to reduce the principle for mortgages nearing default. The bank also agreed to:
".... pay $418 million to resolve its potential liability under the federal False Claims Act for originating and underwriting loans that violated its obligations as a participant in the Federal Housing Administration (FHA) insurance program. As a participant in that program, SunTrust had the authority to originate, underwrite and certify mortgages for FHA insurance."
The agreement was reached after investigations by the DOJ, the HUD Office of the Inspector General (HUD-OIG), the CFPB, and several state attorneys general. SunTrust admitted in the agreement that:
"... between January 2006 and March 2012, it originated and underwrote FHA-insured mortgages that did not meet FHA requirements, that it failed to carry out an effective quality control program to identify non-compliant loans, and that it failed to self-report to HUD even the defective loans it did identify... numerous audits and other documents disseminated to its management between 2009 and 2012 described significant flaws and inadequacies in SunTrust’s origination, underwriting, and quality control processes, and notified SunTrust management that as many as 50 percent or more of SunTrust’s FHA-insured mortgages did not comply with FHA requirements."
Stuart D. Delery, the Assistant Attorney General for the DOJ Civil Division, said:
“As this settlement demonstrates, we will continue to hold accountable financial institutions that misuse public funds and ruin the lives of hardworking Americans in the pursuit of their own financial interests... SunTrust’s irresponsible FHA lending practices caused grievous harm to homeowners and the housing market, as well as wasting hundreds of millions of dollars in taxpayer funds..”
The announcement emphasized that the servicing portion of the settlement agreement is similar to the $25 billion National Mortgage Settlement (NMS) in February 2012 between the federal government, 49 state attorneys general and the District of Columbia’s attorney general and the five largest national mortgage servicers. And, SunTrust will pay $50 million in cash to redress its servicing practices, $40 million of which will be distributed to borrowers and homeowners through the Borrower Payment Fund established by the NMS and administered by the states.
"Over the past several years, SunTrust has made significant improvements to its mortgage underwriting processes and internal controls. This includes increased training and the establishment of a center of specialization to underwrite all government-insured mortgages, which has led to improved quality control and significantly reduced error rates. The company also completed timely implementation of stringent new regulatory requirements for loan origination and disclosure issued by the Consumer Financial Protection Bureau (CFPB) across all of its retail and correspondent origination locations."
Time will tell how effective the training and improvements are.