A nearly $1-billion settlement with California and other state authorities as well as federal agencies will close out two major investigations into possible mortgage wrongdoing by the home-lending arm of Atlanta’s SunTrust Banks Inc.
The agreements announced Tuesday are the latest in a series involving banks accused of abuses in issuing home loans, handling troubled borrowers and packaging mortgages into securities for sale to investors.
The settlement with SunTrust Mortgage Inc., which focuses on loan origination and customer service issues, includes relief for distressed homeowners valued at $500 million and a cash payment of $468 million.
Of the cash portion, $418 million will be paid to the federal government to resolve liability for faulty loans that SunTrust wrote from January 2006 through March 2012. The loans resulted in losses to the Federal Housing Administration, the arm of the Department of Housing and Urban Development that insures residential mortgages.
“SunTrust’s conduct is a prime example of the widespread underwriting failures that helped bring about the financial crisis,” said U.S. Atty. Gen. Eric H. Holder Jr., whose Justice Department worked with attorneys general from 49 states and the District of Columbia on the investigations. “We expect that there will be more cases like this to come.”
The $500 million in borrower relief parallels the assistance that five major banks agreed to provide their troubled customers in the well-publicized $25-billion national mortgage settlement reached in 2012. Components include loan modifications, such as reductions in principal, and short sales, in which borrowers are freed from mortgage debt by selling their homes for less than what they owe.
“This settlement holds a major mortgage servicer accountable for its unacceptable past practices, and provides direct relief to borrowers,” said Iowa Atty. Gen. Tom Miller, who has taken the lead on many mortgage-abuse investigations.
California Atty. Gen. Kamala D. Harris said the settlement will help California’s homeowners get loan modifications and “work to regain their financial footing.”
Borrowers with loans serviced by SunTrust can contact the company directly with questions at (800) 634-7928.
SunTrust also has agreed to pay $50 million in cash to compensate for servicing abuses, $40 million of which will be distributed to borrowers and homeowners through the Borrower Payment Fund established by the national mortgage settlement and administered by the states.
Borrowers who lost their homes to foreclosure from 2008 through 2013 and encountered servicing abuse by SunTrust will be eligible for a payment from the $40-million fund.
About 4,700 Californians are eligible for the foreclosure payments, Harris said. The borrower payment amount will depend on how many borrowers file claims.