Virginia-based SunTrust Banks Inc. agreed last week to pay nearly $968 million for mortgage abuses it committed nationally between 2006 and 2012, but only a small percentage of the money will go to 4,733 Californians who consequently lost their homes to foreclosure.
SunTrust Mortgage, a subsidiary of the bank, misled borrowers about their foreclosure status and charged unauthorized fees while giving them false information about foreclosure alternatives and improperly denying them loan modifications, according to a joint settlement reached with the U.S. Department of Justice and the California Attorney General’s office. The company did not process applications correctly, lied to customers about what they were doing and used robo-signings to falsify documents.
As a result, Californians who lost their homes will get a portion of the $40 million, but they will have to share with others among the 48,233 customers foreclosed nationally. That pencils out to less than $900 apiece if everyone makes a claim.
The biggest chunk of the settlement, $500 million, will be accounted for through relief to current distressed homeowners in the form of loan modifications, such as reductions in principal and short sales. The latter will let borrowers sell their homes for less than what they owe and call it even.
Terms of the settlement were modeled after the $25 billion settlement with five of the nation’s top banks in 2012. Yves Smith of Naked Capitalism explained how that worked to shield banks from taking the hit directly: “The mortgage principal writedowns are guaranteed to come almost entirely from securitized loans, which means from investors, which in turn means taxpayers via Fannie and Freddie, pension funds, insurers, and 401 (k)s. Refis of performing loans also reduce income to those very same investors.”
The settlement includes a series of consumer protections that SunTrust will be expected to put in place under the oversight of an independent monitor. They must ease up on foreclosing people’s homes during loan modification discussions; give homeowners a right to appeal foreclosure decisions; give homeowners a single point of contact during negotiations; improve their procedures and timelines for reviewing loans; and answer the phone when distressed homeowners call.
SunTrust has been in negotiations with the federal government and the states since October. The company’s stock price struck a low of 32.15 that month, hit 37.21 a month ago and climbed steadily to finish at 40.47 on Friday, three days after the settlement was announced.