SunTrust Banks, Inc. (NYSE:STI) agreed to pay nearly $1 billion to settle a U.S. federal probe into allegations of mortgage origination, servicing and foreclosure abuses.
The U.S. Justice Department announced the pact Tuesday and the settlement involves 49 state attorneys general and several federal agencies.
Details of SunTrust settlement
The 14th largest U.S. mortgage lender by origination volume 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 Banks, Inc. (NYSE:STI) 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.
SunTrust Banks, Inc. (NYSE:STI) 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 Chairman and Chief Executive William Rogers Jr. said in a statement: “We are pleased to have resolved these legacy mortgage settlements”.
SunTrust Banks, Inc. (NYSE:STI) joins five other large banks that reached a $25 billion deal to resolve allegations of servicing misconduct in which banks engaged in ‘robo-signing’ to foreclose on homeowners. SunTrust also violated mortgage origination practices between January 2006 and March 2012 by underwriting mortgages for insurance from the Federal Housing Administration that didn’t meet the agency’s requirements.
As reported earlier, since 2009, Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) have compelled several lenders to repurchase bad loans worth billions of dollars. In the past few months, Freddie Mac reached settlements with Wells Fargo & Co (NYSE:WFC), Citigroup Inc. (NYSE:C), JPMorgan Chase & Co. (NYSE:JPM) and SunTrust Banks, Inc. (NYSE:STI). to resolve similar issues.
Similarly Fifth Third Bancorp (NASDAQ:FITB) agreed to pay $25 million to Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) to settle claims that it sold soured mortgages to the agency. Other banks that have recently settled with Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) or Fannie include SunTrust Banks, Inc. (NYSE:STI) and Flagstar Bancorp Inc.