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William Byrnes (Texas A&M) tax & compliance articles

SunTrust Bank Pays $1.2 Billion for Mortgage and Foreclosure Abuses, Non-Prosecution Agreement

Posted by William Byrnes on July 3, 2014


On July 3, Sun Trust resolved the criminal investigation into its “Home Affordable Modification Program” (HAMP) by agreeing to pay $320 million.  Less than a month ago, SunTrust Mortgage Inc. (SunTrust) entered into a $968 million consent judgment to address mortgage origination, servicing, and foreclosure abuses, announced 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.

“SunTrust’s conduct is a prime example of the widespread underwriting failures that helped bring about the financial crisis,” Attorney General Eric Holder said. “From mortgage origination to servicing to securitization, the 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.”

“Deceptive and illegal mortgage servicing practices have pushed families into foreclosure and devastated communities across the nation,” said CFPB Director Richard Cordray.  “Today’s action will help homeowners and consumers harmed by SunTrust’s unlawful foreclosure practices.  The Consumer Bureau will continue to investigate mortgage servicers that mistreat consumers, and we will not hesitate to take action against any company that violates our new servicing rules.”

What is HAMP?

The federal government launched HAMP as an opportunity for homeowners in dire straits to save their homes from foreclosure.  However, SunTrust Mortgage, rather than assist homeowners in need, financially ruined many through an utter dereliction of its HAMP program. SunTrust Banks, Inc. received $4.85 billion in federal taxpayer funds through the U.S. Department of the Treasury Troubled Asset Relief Program (TARP) in 2008.

What SunTrust did? 

  • Unwilling to put resources into HAMP despite holding billions in TARP funds, SunTrust simply placed piles of unopened homeowners’ HAMP applications and paperwork on an office floor until at one point, the floor buckled under the sheer weight of the document packages.  Documents and paperwork were lost.
  • SunTrust issued “mass denials” to HAMP applicants and lied to the Treasury Department about the reasons for the denials. SunTrust’s statements to customers were false.
  • SunTrust improperly commenced foreclosure proceedings on homeowners in active HAMP trial periods, and some of those homeowners saw their homes listed by SunTrust for sale in local newspapers.
  • Rather than reviewing HAMP applications in 20 days and rendering modification decisions within an “as advertised” three- to four-month trial period, in the worst cases, some homeowners were confined to extended trial periods of two or more years.
  • SunTrust misreported current borrowers as delinquent to major credit bureaus.
  • SunTrust denied HAMP modifications to eligible homeowners and instead placed the homeowners in alternative, private modifications that were less favorable to borrowers.
  • SunTrust improperly capitalized amounts of interest onto borrowers’ unpaid principal balances.
  • Other borrowers who were transferred from SunTrust to another servicer while on active HAMP trial modifications were penalized.
  • 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.
  • SunTrust failed to promptly and accurately apply payments made by borrowers, and charged unauthorized fees for default-related services.
  • SunTrust failed to provide accurate information about loan modification and other loss-mitigation services, failed to properly process borrowers’ applications and calculate their eligibility for loan modifications, and provided false or misleading reasons for denying loan modifications.
  • Engaged in illegal foreclosure practices by providing false or misleading information to consumers about the status of foreclosure proceedings where the borrower was in good faith actively pursuing a loss mitigation alternative also offered by SunTrust.
  • SunTrust robo-signed foreclosure documents, including preparing and filing affidavits whose signers had not actually reviewed any information to verify the claims.

Read about the $968 million consent judgment at CFSB and DOJ.

Read about the $320 million non-prosecution agreement at SIGTARP.

book cover

LexisNexis’ Money Laundering, Asset Forfeiture and Recovery and Compliance: A Global Guide – This eBook with commentary and analysis by hundreds of AML experts from over 100 countries,  is designed to provide the compliance officer accurate analyses of the AML/CTF Financial and Legal Intelligence, law and practice in the nations of the world with the most current references and resources. The eBook is organized around five main themes: 1. Money Laundering Risk and Compliance; 2. The Law of Anti-Money Laundering and Compliance; 3. Criminal and Civil Forfeiture; 4. Compliance and 5. International Cooperation.  As these unlawful activities can occur in any given country, it is important to identify the international participants who are cooperating to develop methods to obstruct these criminal activities.

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