SunTrust Agrees to Pay for Mortgage Abuses



The Justice Department, Department of Housing and Urban Development (HUD), and the Consumer Financial Protection Bureau (CFPB), along with 49 state attorneys general and the District of Columbia’s attorney general have reached a $968 million agreement with SunTrust Mortgage to address mortgage origination, servicing, and foreclosure abuses.

The joint agreement is the result of extensive investigations by federal agencies, including the Department of Justice, HUD and the HUD Office of the Inspector General, CFPB and state attorneys general across the country, and includes recoveries for both improper mortgage origination and servicing practices.

SunTrust admitted 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.

SunTrust also admitted that 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% or more of SunTrust’s FHA-insured mortgages did not comply with FHA requirements. 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.” 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.”

“This agreement, which totals nearly $1 billion, not only holds SunTrust accountable for years of abusive practices mortgage origination practices; it also provides for restoration,” said associate attorney general Tony West. “By the terms of this resolution, SunTrust is required to provide $500 million in consumer relief for homeowners as well as abide by terms that will help to prevent the abuses of the past from being repeated. It’s a result attained thanks to the close coordination among our enforcement agency partners throughout the government.”

As part of the settlement, SunTrust has 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 FHA insurance program. As a participant in that program, SunTrust had the authority to originate, underwrite and certify mortgages for FHA insurance.

To view the full Justice Department news release, click here.


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