U.S. Reaches $968 Million Mortgage Settlement With SunTrust -- Update

By Dow Jones Business News, 
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By Alan Zibel and Andrew R. Johnson

WASHINGTON--The U.S. government slapped SunTrust Banks Inc. with $968 million in fines and consumer relief as the Atlanta lender became the latest bank to settle allegations of abusive mortgage practices.

The pact announced Tuesday is an outgrowth of an effort by the government to penalize banks for what officials say were rampant problems in their businesses of making mortgages and collecting payments.

The settlement involves 49 state attorneys general and several federal agencies.

SunTrust is the 14th largest U.S. mortgage lender by origination volume, according to trade publication Inside Mortgage Finance. The company announced tentative agreements last October with U.S. authorities, including the Justice Department and Department of Housing and Urban Development, and disclosed the payment amounts at that time.

The bank agreed to pay a $418 million penalty and admitted it didn't comply with lending standards mandated for loans insured by the Federal Housing Administration. The Justice Department cited internal SunTrust documents that show the bank's managers were aware of poor internal controls on loan underwriting, as well as high rates of error in loans backed by the FHA, which insures loans against default.

The bank didn't admit or deny the government's other allegations.

The company also committed to provide $500 million in relief to consumers who owe more on their mortgages than their homes are worth over three years. It also committed to refund $40 million to around 48,000 consumers who lost their homes through foreclosures.

"SunTrust's conduct is a prime example of the widespread underwriting failures that helped bring about the financial crisis," Attorney General Eric Holder said in a statement.

"We are pleased to have resolved these legacy mortgage settlements," SunTrust Chairman and Chief Executive William Rogers Jr. said in a statement.

As part of the agreement, SunTrust joined five other large banks that reached a $25 billion pact with federal and state authorities in 2012 that resolved allegations that banks filed faulty foreclosure documents in proceedings against borrowers.

The agreement is to be overseen by Joseph Smith, the former North Carolina bank regulator who oversees banks' compliance with the 2012 mortgage settlement.

SunTrust still faces more regulatory scrutiny over its mortgage practices.

The bank said in a February regulatory filing that it faces an investigation by the Justice Department over mortgages that SunTrust sold to government-sponsored enterprises Fannie Mae and Freddie Mac. A spokeswoman for SunTrust said that matter wasn't addressed in the settlement completed on Tuesday.

The pact also doesn't resolve an investigation by federal authorities of SunTrust's participation in a U.S. Treasury Department mortgage-modification program. The bank said in the February filing that it could face "substantial penalties" stemming from that probe.

Write to Alan Zibel at alan.zibel@wsj.com and Andrew R. Johnson at andrewr.johnson@wsj.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires


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