July 3 (Bloomberg) -- SunTrust Banks Inc., Georgia’s biggest lender, agreed to pay as much as $320 million to resolve federal criminal allegations it mishandled applicants for mortgage modifications.
The agreement, which lets the bank avoid prosecution, includes at least $179 million in “consumer remediation,” a sum that could rise to a maximum of $274 million, to resolve claims related to its administration of the federal Home Affordable Modification Program, known as HAMP, the Atlanta-based company said in a statement today.
“Instead of helping distressed homeowners, SunTrust’s mismanagement drove up foreclosures,” Attorney General Eric Holder said in a separate statement. The bank’s actions “increased costs for hardworking men and women across our nation,” he said.
The Justice Department’s willingness to let SunTrust avoid a guilty plea contrasts with the stance it took with Paris-based BNP Paribas SA and Credit Suisse Group AG, based in Zurich. BNP agreed this week to pay a total of almost $9 billion and to plead guilty for processing banned transactions involving Sudan, Iran and Cuba. Credit Suisse on May 19 agreed to pay $2.6 billion and pleaded guilty to using secret Swiss accounts to help Americans hide money from the Internal Revenue Service.
The U.S. inquiry into SunTrust was also a criminal probe, based on the theory that the bank made fraudulent representations to borrowers to increase the number of people it could get into the HAMP system, Tim Heaphy, U.S. Attorney for the western district of Virginia, said on a conference call. SunTrust’s conduct since 2010, including changes in leadership, helped it avoid prosecution, he said.
“The conduct really was mismanagement rather than affirmative fraud,” Heaphy said. “No one said, ‘To hell with the customers.’”
U.S. investigators are examining other banks that processed HAMP applicants and there may be future settlements with monetary penalties larger than SunTrust’s deal, Heaphy said.
Legal disputes tied to faulty mortgages and foreclosures stemming from the housing bust have cost the six biggest U.S. lenders more than $100 billion, according to data compiled by Bloomberg.
As part of the agreement, SunTrust will also pay $20 million to fund housing counseling for homeowners, $10 million toward restitution to government mortgage-finance companies and $16 million to the U.S. Treasury, according to the statement.
“We recognize that there were deficiencies in our administration of HAMP during the recession,” Jerome Lienhard, SunTrust Mortgage Inc.’s president and chief executive officer, said in the bank’s statement.
SunTrust also said today it completed the sale of its asset-management subsidiary, RidgeWorth Capital Management Inc., which will result in a $105 million pretax gain. The combined effect of the RidgeWorth sale and a $204 million charge related to the HAMP settlement will be a charge of 13 cents per share in the second quarter, SunTrust said.
Net income in the second quarter probably rose to 76 cents a share from 68 cents last year, according to the adjusted estimate of 27 analysts surveyed by Bloomberg before the settlement was announced.
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