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Sun Trust to end investigation with $320 million payoff

BY DEAN SEAL [e-mail] | Posted 50 minutes ago

Sun Trust Mortgage Inc. has agreed to pay up to $320 million to end a criminal investigation into allegations that it misled customers under a federal program to help home-owners avoid foreclosure, prosecutors and the company said Thursday.

A news release from the federal Department of Justice on Thursday said the Richmond-based mortgage company made "material misrepresentations and omissions to borrowers" participating in its Home Affordable Modification Program, which was established a year after the housing crisis to help homeowners avoid defaults and foreclosures.

Between $179 million and $274 million will be used to compensate about 22,000 borrowers for the damage caused by SunTrust's mismanagement of the program.

More than 1,000 of those borrowers reside in the Western District of Virginia, said Brian McGinn of the U.S. attorney's office.

The company, a division of Atlanta-based Sun Trust Banks Inc., had received $4.85 billion from the Troubled Asset Relief Program to fund HAMP in 2009, which gave homeowners the chance to restructure their mortgages to set better terms and lower monthly payments.

The program allowed homeowners to apply for the more favorable terms and, initially, screened them within 20 days before putting them on a 90-day trial period where they needed to make the reduced monthly payments. If homeowners remained current on the payments, the modifications would become permanent.

Pressured to increase its number of borrowers, SunTrust soon began offering the 90-day trial period if the bank thought the borrower would qualify based on verbal information, according to a statement of facts in the settlement.

Issues arose when Sun Trust was unable to provide verification to borrowers within 20 days, or when the trial periods extended far past 90 days without SunTrust telling borrowers whether they would qualify for the permanent loan modification.

Borrowers were regularly on trial periods that lasted "close to, if not more than, a year," the statement of facts said. When borrowers began the program, they were unable to explore other options that could have helped save their home.

Further, Sun Trust improperly reported as many as 75 percent of its customers as delinquent during the trial period even though they were current on their payments, severely damaging the credit scores of these borrowers and increasing their costs from higher interest rates for credit applications, higher insurance costs and lost job opportunities, the statement said.

SunTrust also wrongly charged many borrowers for interest at higher, unmodified rates during these extended trial periods, and improperly denied the loan modifications for some borrowers.

Some homes were even improperly foreclosed upon during the trial periods, causing a range of financial harms for the slighted homeowners.

SunTrust has cooperated with the investigation and admitted fault and mismanagement of HAMP, and the executives and managers responsible are no longer with the company, the statement of facts said.

The company "did not have in place" the personnel or resources to properly manage the program, U.S. Attorney Timothy Heaphy said at a news conference Thursday.

The two-year criminal investigation that followed was the result of numerous complaints, Heaphy said.

"The criminal investigation uncovered that SunTrust so bungled its administration of the program that many homeowners would have been exponentially better off having never applied through the bank in the first place," said Christy Romero, special inspector general for the Troubled Asset Relief Program. "Unwilling to put resources in HAMP despite holding billions in TARP funds, SunTrust put piles of unopened homeowners' HAMP applications in a room."

"SunTrust's floor actually buckled under the sheer weight of unopened document packages," Romero said, calling SunTrust's negligence "appalling, miserable, inexcusable and repulsive."

In addition to the $179 million to $274 million in restitution to borrowers damaged by the program, $16 million will be made available to law enforcement agencies working on mortgage fraud. Another $10 million will be paid to government-sponsored enterprises Freddie Mac and Fannie Mae, and $20 million will be used to establish a fund for housing counseling agencies to aid distressed homeowners.

"Sun Trust has done the right thing by agreeing to this novel package of restitution, remediation and prevention, which represents a significant victory not only for SunTrust customers, but also for Americans who will receive counseling and other assistance when faced with financial challenges," Heaphy said.

"We recognize that there were deficiencies in our administration of HAMP during the recession, and through the improvements we have made to our internal processes and this restitution plan we are demonstrating our commitment to meet the high standards that we set for ourselves and that our customers expect," Sun Trust Mortgage CEO Jerome Lienhard said in a news release.

Sun Trust Mortgage will not face criminal penalties as a result of the settlement. Investigation into the individuals responsible for the mismanagement is ongoing, Heaphy said.

Last month, Sun Trust and the Justice Department also agreed to a $1 billion settlement to resolve allegations that the company underwrote and endorsed faulty mortgage loans between 2006 and 2012.

http://www.staffordcountysun.com/news/business/article_f6ab8dcc-07ac-11e4-873a-001a4bcf6878.html?mode=jqm