SunTrust Banks Inc. will pay up to $320 million to resolve allegations brought by the federal government that the bank failed to provide mortgage modifications to homeowners applying through the Home Affordable Refinance Program (HAMP) in a timely manner, resulting in unnecessary foreclosures and damage to consumers' credit scores.
As per the agreement, SunTrust will pay $179 million in consumer remediation – however, that amount could reach as high as $274 million – directly to consumers who were harmed by the bank's actions. In addition, it will pay $20 million to fund housing counseling for homeowners, $10 million toward restitution to government-sponsored enterprises Fannie Mae and Freddie Mac, and a cash payment of $16 million to the U.S. Treasury.
The company will incur a $204 million pre-tax charge in the second quarter of 2014 as a result of this agreement.
‘Resolving this legacy matter enhances our ability to focus on the future and support the continued housing recovery,’ says Jerome Lienhard, president and CEO of SunTrust Mortgage Inc., in a statement. ‘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.’Â
As per the complaint, SunTrust enticed homeowners to apply for loan assistance through HAMP; however, it lacked the needed staff and infrastructure to handle the volume of applications that came in following the program's launch in 2009. As a result, there was a severe backlog of applications.
In addition, many consumers complained that the bank was unresponsive after they had submitted an application for a mortgage modification. The bank promised to process HAMP applications within 20 days, but in some cases it took as long as a year, according to the federal government's complaint.
In some cases, SunTrust initiated foreclosure against borrowers who were being evaluated for modifications, the government says in its complaint.
‘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,’ says Christy Romero, special inspector general for the Troubled Asset Relief Program, in a statement.
What's more, the bank misreported whether borrowers were delinquent to the credit bureaus, thus damaging their credit scores, the government said in its complaint.
Last month, SunTrust agreed to pay $968 million in fines and consumer relief to resolve allegations that it mishandled the servicing on borrowers' loans and failed to adhere to underwriting guidelines for the Federal Housing Administration's mortgage insurance program.
SunTrust still faces an investigation by the U.S. Department of Justice over ‘faulty’ mortgages it originated and sold to government-sponsored enterprises Fannie Mae and Freddie Mac.