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SunTrust to Settle HAMP Charges for $320 Million

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SunTrust Banks, Inc. (STI - Free Report) has announced the resolution of one more mortgage-related probe within 20 days of announcing a settlement pertaining to faulty mortgage servicing as well as lending and foreclosure practices. The latest settlement by SunTrust Mortgage, Inc., the mortgage division of the company, resolves the allegations of misleading customers seeking loan modifications under the Home Affordable Modification Program (HAMP).

Under the settlement, announced by the U.S. Attorney for the Western District of Virginia, SunTrust will pay up to $320 million. The misleading business conducts occurred between Mar 2009 and Dec 2010.

SunTrust allegedly misrepresented information to customers participating in the HAMP. The company was also accused of failing to process loan modification applications in a timely manner. This prevented the borrowers from undertaking other options to avoid foreclosures.

Further, SunTrust damaged the credit scores of several borrowers by misrepresenting them as delinquent to the credit bureaus. Moreover, excessive interest was charged from the customers.

Of the total settlement amount, SunTrust will be paying a maximum of $274 million, as customer relief. Further, the bank will provide $20 million to the housing counseling agencies. Of the remaining amount, $10 million will go to Fannie Mae and Freddie Mac and $16 million to the law enforcement agencies.

SunTrust had revealed that it was under probe for the above-mentioned allegations in Aug 2013. Owing to this settlement, the company will incur a pre-tax charge of $204 million in second-quarter 2014.

Also, as SunTrust revealed separately in the regulatory filings, following the divestiture of its asset management subsidiary, RidgeWorth Capital Management, Inc., it will be recording a pre-tax gain of $105 million. Hence, the bank will incur a charge of 13 cents per share in the second quarter as a result of the combined financial impact of these two transactions.

Though SunTrust has resolved the mortgage-related probes, it still faces investigation by the Department of Justice over mortgages sold to Fannie Mae and Freddie Mac. Hence, the litigation overhang will persist in the next few quarters.

Currently, SunTrust carries a Zacks Rank #3(Hold). A better-ranked major regional bank is KeyCorp. (KEY - Free Report) with a Zacks Rank #2 (Buy).

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