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December 08, 2014
2015-PH-1802
2015-PH-1802.pdf

We assisted the U.S. Department of Justice (DOJ) in conducting an investigation of SunTrust Mortgage, Inc.’s underwriting practices for Federal Housing Administration (FHA)-insured loans. 

On June 17, 2014, DOJ and the Consumer Financial Protection Bureau, along with 49 State attorneys general and the District of Columbia’s attorney general, filed suit against SunTrust for misconduct related to the origination and servicing of single-family residential mortgages, based in part on OIG’s review of the underwriting of FHA loans.  The lawsuit alleged that during the period January 2006 through March 2012, SunTrust knowingly failed to comply with HUD regulations and requirements of the direct endorsement lender program governing the origination and underwriting of FHA-insured loans.  FHA insured loans based on annual and per loan certifications submitted by SunTrust that it had complied with FHA requirements.  When the borrowers defaulted on the loans, FHA incurred substantial losses. 

On the same day, June 17, 2014, SunTrust entered into a settlement agreement to pay $968 million to end the lawsuit.  Of the settlement total, $418 million was attributable to FHA’s direct endorsement lender program.  The FHA insurance fund was to receive $300 million of the $418 million before incurring related costs, and the remaining $118 million was to be remitted to other Federal entities involved in the suit.  As part of the settlement, SunTrust admitted certain conduct, including endorsing for FHA insurance certain loans that did not meet underwriting requirements, and self-reporting to FHA fewer deficient loans than required, based on its internal quality control reports.  On September 30, 2014, the United States District Court for the District of Columbia entered the consent judgment, which made SunTrust liable to pay the $418 million attributable to FHA’s direct endorsement lender program.

We recommended that HUD’s Office of General Counsel, Office of Program Enforcement allow us to post the $300 million recovery to HUD’s Audit Resolution and Corrective Actions Tracking System as ineligible costs.