June 20, 2014

DOJ Catch of the Week — SunTrust

SuntrustBy the C|C Whistleblower Lawyer Team

This week’s Department of Justice “catch of the week” goes to SunTrust Mortgage Inc., the mortgage lending arm of SunTrust Bank. On Tuesday, the Justice Department, Department of Housing and Urban Development (HUD), the Consumer Financial Protection Bureau, and virtually every state attorney general in the country, reached a $968 million agreement with the bank to resolve charges of mortgage origination, servicing, and foreclosure abuses.  See DOJ press release.

As part of the agreement, SunTrust admitted it violated its obligations as a participant in the Federal Housing Administration (FHA) insurance program. Specifically, it admitted that between January 2006 and March 2012, SunTrust 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 conceded that numerous internal audits had revealed significant flaws and inadequacies in SunTrust’s origination, underwriting, and quality control processes, and had alerted management that at least half of SunTrust’s FHA-insured mortgages did not comply with FHA requirements.  Yet the bank did nothing to correct these deficiencies.

SunTrust’s $968 million payout will be allocated as follows. $418 million will go to the government to resolve the bank’s potential liability under the federal False Claims Act. $500 million will go to borrowers and homeowners in the form of principal and interest rate reductions for borrowers at risk of default or underwater on their mortgages.  And another $50 million will go to borrowers to redress the bank’s improper mortgage servicing practices. The servicing portion of the agreement parallels the $25 billion National Mortgage Settlement (NMS) reached in February 2012 between the federal government, the states, and the five largest national mortgage servicers.

Sending a clear signal the government is nowhere near done in going after those mortgage lenders that contributed to the Great Recession, Attorney General Eric Holder said in announcing the settlement:

SunTrust’s conduct is a prime example of the widespread underwriting failures that helped bring about the financial crisis. . . . [T]he Department of Justice is attacking every facet of conduct that led to the Great Recession. We will continue to hold accountable financial institutions that, in the pursuit of their own financial interests, misuse public funds and cause harm to hardworking Americans. We expect that there will be more cases like this to come.

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