Despite settling with the federal government this week for more than $1.3 billion related to its mortgage lending and servicing practices, SunTrust still faces at least one continuing investigation into the way it works out loans.
Meanwhile, some Georgia consumers could get principal and interest reductions on their home loans due to actions by the state’s biggest bank.
How many people will be affected is unclear.
A $160 million Federal Reserve Board penalty — part of $500 million SunTrust will spend for consumer relief with three agencies — will go in part to reducing interest rates or principal payments.
The bank may also choose to donate some settlement money to nonprofit housing groups.
Though a SunTrust spokesman would not elaborate as to how the money will be spent, the Federal Reserve Board said at least some will go toward helping people who had problems with robosigning — when mortgage documents were signed without being properly reviewed — at their primary residence in 2009 and 2010.
The penalties are welcome news for some borrowers who may finally see relief after being subjected to improper foreclosure actions or documentation. SunTrust is the ninth-largest mortgage lender nationally, and a leader in Georgia.
“I hope the real benefit is going to be something significant,” said Karen Brown, director of the Home Defense Program and Atlanta Legal Aid Society. “What is it really going to boil down to for home owners and the broad economy? [Nearly] $1.5 billion is a drop in the bucket for everything our country has gone through, our state has gone through.”
To help borrowers, Brown said, the amount of principal reduction will have to be significant — tens of thousands of dollars per person. Interest rate reductions should be several percentage points to make a difference.
Without more details, Brown said it’s impossible to say what kind of difference the settlement might make to those who dealt with improper foreclosures.
“It’s really hard to know how many folks are in the pool,” Brown said. “That’s going to be critical.”
Details of how the remainder of the $500 million consumer relief penalty will be used were unavailable due to the government shutdown. That penalty, and a $468 million cash payment, were assessed by United States Department of Housing and Urban Development and the United States Department of Justice as part of the National Mortgage Servicing Settlement. They settle claims related to Federal Housing Administration-insured mortgage loans originated from January 1, 2006 through March 31, 2012.
The payments are not surprising, Brown said. The $1.3 billion announced Thursday is the largest amount SunTrust has paid to date. The penalties will have a $179 million impact on SunTrust’s bottom line, but the bank said it doesn’t expect the charges to have much impact “on its future financial results.”
A year ago, SunTrust suggested after a $375 million payment to Fannie Mae and Freddie Mac that the worst was behind it. But the penalties continued.
SunTrust has said an investigation into its administration of the Home Affordable Modification Program, which lets working homeowners lower monthly mortgage payments to make them more affordable, remains active.
“Are we there yet?” Sanford Bernstein analyst Kevin St. Pierre asked in a Friday research note. He thinks so.
“The magnitude of the settlements is sizeable, and we expect this will finally put most of the mortgage-related concerns to rest,” the note added.
Earlier this month, SunTrust paid an additional $65 million to Freddie Mac for loans made between 2000 and 2008, though the bank got credit for $25 million it had already paid.
Thursday’s agreement includes $373 million for loans sold to Fannie Mae between 2000 and 2012. SunTrust has already paid $145 million of that total.
Any money of the $160 million Fed total not used for consumer relief end by the end of 2015 will be paid in a penalty that will go toward federal budget deficit reduction. SunTrust should be contacting anyone who is eligible for aid, but borrowers who think they were harmed by foreclosure proceedings during the appropriate periods are also free to contact the bank.