The agreement stems from an investigation into SunTrust's compliance with the federal Home Affordable Modification Program.Credit Erik S. Lesser/European Pressphoto Agency Federal prosecutors and SunTrust Banks reached a settlement on Thursday in a criminal investigation into the bank's tardiness in approving mortgage modifications. The bank will pay up to $320 million for a combination of consumer relief and housing counseling services.
The agreement stems from an investigation by federal prosecutors in Virginia into SunTrust's compliance with the Home Affordable Modification Program, one of several initiatives enacted by the Obama administration to encourage banks to modify loans for struggling homeowners in the wake of the financial crisis.
Federal prosecutors and investigators from several other federal government agencies found that SunTrust, which is based in Atlanta, not only was slow in processing borrower applications for mortgage modifications but also made misrepresentations to homeowners. Most of the money being paid by the bank under the settlement will go toward a fund to compensate borrowers who were shortchanged by SunTrust.
"SunTrust 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," Timothy J. Heaphy, the United States attorney for the Western District of Virginia, said in a statement.
The deal will require SunTrust to provide $179 million for consumer restitution and potentially set aside an additional $95 million if needed. The bank will also provide $20 million to a fund that will distribute money to organizations that provide housing counseling services. SunTrust also will make a $10 million payment to Fannie Mae and Freddie Mac, two government-sponsored mortgage firms.
Finally, SunTrust will forfeit $16 million to the Treasury Department.
SunTrust said in a news release that it would take a $204 million pretax charge in the second quarter to cover the cost of the agreement. The bank said it acknowledged weaknesses in its administration of the HAMP initiative and had put in place procedures to correct the deficiencies.
The government said thousands of the 26,000 borrowers who applied to SunTrust for loan modifications under the program may be entitled to relief under the restitution fund.
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