SunTrust to pay $1.5 billion in mortgage settlements

Fallout from the housing bust continues to dog Georgia’s biggest bank, as Atlanta-based SunTrust disclosed Thursday it is paying about $1.5 billion in penalties to four federal agencies to settle claims related to mortgage and foreclosure practices.

Some of the money is earmarked to aid consumers affected by mortgage and foreclosure problems, but details weren’t immediately available.

SunTrust is not admitting wrongdoing in agreeing to pay the penalties, which relate to the way SunTrust made and serviced mortgages as early as 2000.

The Federal Reserve Bank, which assessed some of the penalties, said SunTrust was paying them for “unsafe and unsound processes and practices in residential mortgage loans servicing and foreclosure processing.”

In a statement, SunTrust Banks’ chairman and CEO William H. Rogers said the payments will resolve historic issues related to SunTrust’s bad mortgages.

“These settlements reduce uncertainty, further improve our risk profile, and enhance our ability to focus on future growth,” he said.

But an investigation disclosed in the spring into SunTrust’s administration of the Home Affordable Modification Program, which lets working homeowners lower monthly mortgage payments to make them more affordable, remains active.

SunTrust has been a leading lender in the Southeast, especially Georgia and Florida. Like other lenders, it moved heavily into mortgage lending during the boom years, and was saddled with huge amounts of bad loans when the housing market collapsed.

The crisis pushed SunTrust into the red for a time, though it has recovered over the past three years.

The settlement includes a $468 million cash payment by SunTrust to the U.S. Department of Housing and Urban Development and the U.S. Department of Justice.

SunTrust has also pledged $500 million in consumer relief related to Federal Housing Administration loans originated by SunTrust mortgage between Jan. 1, 2006 and March 31, 2012.

Another $373 million payment, being made to Fannie Mae, relates to about 1.1 million SunTrust loans funded by the agency between 2000 and 2012. SunTrust has already paid about $145 million toward that total to compensate Fannie Mae loans that did not meet its standards.

And the Federal Reserve Board imposed a $160 million civil monetary penalty. SunTrust will pay that through consumer relief and cash payments, the bank said in a filing.

A SunTrust spokesman would not elaborate on the method or criteria for consumer relief, but a Fed statement said the sanction would fund borrower assistance and remediation as well as counseling to borrowers at risk of default or foreclosure.

An earlier agreement discusses reimbursing harmed borrowers for flawed penalties, expenses, fees or other financial injuries tied to the bank’s actions.

The penalty takes into account the comparative severity of SunTrust’s misconduct and size of its foreclosure activities, the Fed said. In 2011, SunTrust was the nation’s eighth-largest mortgage service and the bank began foreclosure proceedings on more than 41,000 properties in 2009 and 2010.

The penalties for SunTrust were similar to those the Fed issued last year against five other mortgage servicers as part of the National Mortgage Settlement.

Because of the government shutdown, no one from HUD or the DOJ was available to comment on the penalties, and the agencies did not put out statements. Fannie Mae general counsel Bradley Lerman said in a statement that the agreement is “another sign of progress” in resolving issues that will help strengthen the housing market.

SunTrust said the settlements will reduce its third quarter earnings by $179 million.

The settlement isn’t the first for SunTrust. Last winter it was part of an $8.5 billion settlement involving 10 banks hit by claims of abusive foreclosure practices. Regulators at the time said as many as 180,000 Georgians might be eligible for payments stemming from abuses during foreclosures, though it’s unclear how much of the money has reached consumers.

And in late 2012 SunTrust and five other big lenders agreed to pay $162 million to settle a sweeping whistle-blower case alleging improper fees on home refinance loans for veterans, according to attorneys for the plaintiffs. SunTrust also announced a $65 million settlement with Freddie Mac earlier this month.