SunTrust to Pay $1.5B to Settle Mortgage Claims

SunTrust Banks (STI) has agreed to pay $1.5 billion to resolve claims of shoddy mortgage lending, servicing and foreclosure practices.

SunTrust expects a $179 million hit to its third-quarter earnings as a result, after adjusting for a tax allowance and applying other credits that offset some of the charges. The Atlanta company disclosed the combination of settlements and fines in a regulatory filing Thursday in advance of its third-quarter results.

In the largest of the settlements announced Thursday, SunTrust  has agreed to pay $468 million in cash and provide $500 million in relief to settle claims brought by the U.S. Department of Housing and Urban Development and the Justice Department.

The claims related to SunTrust mortgage loans insured by the Federal Housing Administration and to civil charges connected with last year's national mortgage settlement, the filing said.

SunTrust also reached an agreement with the Federal Reserve Board to pay a $160 million civil penalty in connection with flawed servicing and foreclosure practices. The penalties stem from a 2011 consent order the bank entered with the Fed, which claimed that SunTrust foreclosed on homeowners based on flawed documentation. The order also criticized the bank's responsiveness to homeowners and its internal controls.

SunTrust also reached a $373 million settlement with Fannie Mae, related to Fannie's demands that SunTrust repurchase 1.1 million loans it sold from 2000 through 2012. SunTrust's payment to Fannie will be reduced by approximately $145 million thanks to credits for prior repurchases.

The agreement "resolves repurchase issues and compensates taxpayers fairly, allowing Fannie Mae and SunTrust to move forward with an even stronger relationship," Fannie Mae General Counsel Bradley Lerman said in an email.

Earlier this month SunTrust announced a $65 million settlement with Freddie Mac that would resolve its repurchase claims with that government-sponsored enterprise.

SunTrust also said it agreed to sell servicing rights on delinquent mortgages with unpaid principal balances of about $1 billion. It did not disclose the price or name the buyer.

A tax allowance worth $113 million in the third quarter will offset the settlements and fines. But SunTrust has also revised its methods for valuing certain loan losses, which will result in a $96 million hit to its quarterly results.

SunTrust is scheduled to issue its third-quarter report on Oct. 18.