SunTrust Mortgage agreed this week to pay $968 million to the Department of Justice, Department of Housing and Urban Development, and the Consumer Financial Protection Bureau, along with 49 state attorneys general and the District of Columbia's attorney general for mortgage origination, servicing, and foreclosure abuses.  

In a statement, Attorney General Eric Holder warned that similar cases are on the way. “SunTrust's conduct is a prime example of the widespread underwriting failures that helped bring about the financial crisis,” Holder said. “We will continue to hold accountable financial institutions that, in the pursuit of their own financial interests, misuse public funds.”

As part of the settlement, SunTrust has agreed to pay $418 million to resolve its potential liability under the False Claims Act for originating and underwriting loans that violated its obligations as a participant in the Federal Housing Administration (FHA) insurance program.  As a participant in that program, SunTrust had the authority to originate, underwrite, and certify mortgages for FHA insurance.

SunTrust admitted that between 2006 and 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 further admitted that numerous audits and other documents distributed to management between 2009 and 2012 described significant flaws and inadequacies in SunTrust's origination, underwriting, and quality control processes.

Compliance Obligations

The government likened the servicing portion of the settlement to the $25 billion National Mortgage Settlement (NMS) reached in February 2012 between the federal government, 49 state attorneys general and the District of Columbia's attorney general and the five largest national mortgage servicers. 

Under the agreement announced June 17, SunTrust has agreed to provide $500 million in additional relief over the next three years directly to borrowers and homeowners in the form of reducing the principal on mortgages for borrowers who are at risk of default, reducing mortgage interest rates for homeowners who are current but underwater on their mortgages, and other relief. 

SunTrust also has agreed to pay $50 million in cash to redress its servicing practices, $40 million of which will be distributed to borrowers and homeowners through the Borrower Payment Fund established by the NMS and administered by the states.

The joint federal-state agreement also requires SunTrust to implement significant changes in how they service mortgage loans, handle foreclosures, and ensure the accuracy of information provided in federal bankruptcy court.

The agreement requires new servicing standards which will prevent foreclosure abuses of the past—such as robo-signing, improper documentation and lost paperwork—and will create dozens of new consumer protections.  The new standards provide for strict oversight of foreclosure processing, including third-party vendors, and new requirements to undertake pre-filing reviews of certain documents filed in bankruptcy court.


The new servicing standards ensure that foreclosure is a last resort by further requiring SunTrust to evaluate homeowners for other loss mitigation options first.  In addition, SunTrust is restricted from foreclosing while the homeowner is being considered for a loan modification. 

The new standards also include procedures and timelines for reviewing loan modification applications and give homeowners the right to appeal denials.  SunTrust will also be required to simplify the process for homeowners needing help by creating a single point of contact for borrowers seeking information about their loans and—importantly—maintaining adequate staff to handle calls.

Independent Monitor 

Compliance with the agreement will be overseen by an independent monitor, Joseph Smith, who is also the monitor for the NMS. Smith has served as the North Carolina Commissioner of Banks since 2002, and is also the former chairman of the Conference of State Banks Supervisors. 

Smith will oversee implementation of the servicing standards required by the agreement; impose penalties of up to $1 million per violation (or up to $5 million for certain repeat violations); and publish regular public reports that identify any quarter in which a servicer fell short of the standards imposed in the settlement.

More to Come?

The settlement doesn't prevent state and federal authorities from pursuing criminal enforcement actions related to this or other conduct by SunTrust, or from punishing wrongful securitization conduct that is the focus of the Residential Mortgage-Backed Securities Working Group of President Barack Obama's Financial Fraud Enforcement Task Force. The settlement also doesn't prevent the CFPB from pursuing civil enforcement actions against SunTrust for violations of the CFPB's new mortgage servicing rules that took effect in January 2014.

State attorneys general also preserved, among other things, all claims against the Mortgage Electronic Registration Systems (MERS), the mortgage registry used and abused by lenders to circumvent local land recording registries, and all claims brought by borrowers. Additionally, the agreement doesn't prevent any action by individual borrowers who wish to bring their own lawsuits.