SunTrust Mortgage Fraud Case: FHA Loans Approved, Defects Left Unreported

SunTrust Mortgage agreed to pay $418 million in a False Claims Act fraud case over defective loans it originated and underwrote for Federal Housing Administration insurance. The company admitted that its internal reviews had identified serious problems, that management had received warnings, and that even defective loans it found went unreported to the Department of Housing and Urban Development. For someone inside underwriting or quality control, that is the heart of the case: what the lender knew about the mortgages it certified for federal insurance.

The Justice Department’s June 17, 2014 announcement put that FHA obligation inside a $968 million agreement covering mortgage origination, servicing and foreclosure practices. This page follows SunTrust’s admissions and the different obligations in that agreement, while our page on insurance payments and government loss explains how a mortgage claim becomes a loss after recoveries. SunTrust was both a lender and a servicer, headquartered in Richmond, Virginia. The different jobs produced different failures and different remedies.

What Did SunTrust Admit About FHA Origination?

SunTrust admitted that between January 2006 and March 2012 it originated and underwrote FHA-insured mortgages that failed to meet FHA requirements. It also admitted failing to operate an effective quality-control program and failing to report defective loans it had identified.

The Federal Housing Administration insurance process gave SunTrust authority to originate, underwrite and certify mortgages for federal insurance. The later claim and HUD payment are further steps in the same chain.

SunTrust also admitted that audits and other documents sent to management between 2009 and 2012 described significant flaws in origination, underwriting and quality control. Those documents warned that “as many as 50 percent or more” of its FHA-insured mortgages did not meet FHA requirements.

The Justice Department’s account quotes a 2012 internal document identifying a “Broken Loan Origination Process” and a “Deficient Government Insuring Process.” Other management reports described quality control as “severely flawed” and “ineffective.” We see a lender that reported its broken processes to itself.

For an employee familiar with underwriting defects and false certifications, the management distribution matters as much as the original finding. A review identifies the problem, while the report’s recipients and the response show what happened after the business learned of it.

What Did SunTrust Promise Borrowers and Homeowners?

SunTrust separately agreed to provide $500 million in consumer relief through measures such as principal reductions for borrowers at risk of default and interest-rate reductions for homeowners who were current but owed more than their homes were worth. The agreement measured that obligation through credits for qualifying relief.

The servicing cash obligation was another $50 million, with $40 million designated for borrowers and homeowners through the Borrower Payment Fund established by the National Mortgage Settlement. The states administered that fund.

The agreement also required changes to foreclosure processing, documentation and information supplied in bankruptcy court. The standards addressed robo-signing, improper documentation and lost paperwork.

Its servicing standards required evaluation of alternatives before foreclosure, restricted foreclosure while a homeowner was being considered for a modification, and called for a single point of contact and adequate staff to handle calls. An independent monitor would oversee the servicing standards and publish reports identifying failures to meet them.

Who Investigated SunTrust’s Origination and Servicing Practices?

The Justice Department’s Civil Division and U.S. Trustee Program, HUD’s Office of Inspector General, FHA, the Consumer Financial Protection Bureau and state attorney general offices conducted the investigations behind the civil agreement. The agreement brought together federal agencies, forty-nine state attorneys general and the District of Columbia’s attorney general.

What Can an Insider’s SunTrust Loan File Explain?

An insider’s knowledge can connect a defective loan to the certification, management warning and later payment record. In SunTrust’s FHA admissions, the especially telling connection was between identified defects and the failure to report them. Someone who saw the review circulated, the response recorded or the same problem recur may understand a decision that the final certification alone leaves out.

The supporting records retained inside a lender can connect underwriting inputs and review findings to the version adopted for submission. The servicer and the claim submitter may hold different parts of the payment trail. We work with insiders to connect those parts: what the file showed, who relied on it, what the government was told and where the money went.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. Our work starts with the loan and the conduct you know, connecting that knowledge to a potential mortgage whistleblower recovery.

You Saw What Reached Management

If you know how an FHA defect was reviewed, who received the warning or what a servicing report left out, speak to one of our Whistleblower Experts about what reached management. We build your strongest mortgage whistleblower case with you and bring in mortgage fraud whistleblower lawyers who understand lender certifications and government claims. You bring the view from inside the operation, and we stay beside you through the case.