SunTrust 2013 Annual Report Download - page 212

Notes to Consolidated Financial Statements, continued
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particularly in the areas of residential mortgage loan servicing, loss mitigation and foreclosure; (h) enhance and strengthen
the enterprise-wide risk management program with respect to oversight of residential mortgage loan servicing, loss mitigation
and foreclosure activities; and (i) enhance and strengthen the internal audit program with respect to residential loan servicing,
loss mitigation and foreclosure activities. The comprehensive third party risk assessment was completed in August 2011,
action plans designed to complete the above enhancements were accepted by the FRB, and the Company has implemented
enhancements consistent with such plans. During the second quarter of 2013, an independent third party consultant approved
by the FRB completed its review and submitted to the FRB a validation report with respect to compliance with the aspects of
the Consent Order referenced above. The Company continues its implementation of the recommendations noted in this report.
Under the terms of the Consent Order, SunTrust Bank and STM also retained an independent foreclosure consultant approved
by the FRB to conduct a review of residential foreclosure actions pending at any time during the period from January 1, 2009
through December 31, 2010, for loans serviced by STM, to identify any errors, misrepresentations, or deficiencies, determine
whether any instances so identified resulted in financial injury, and prepare a written report detailing the findings. On January
7, 2013, the Company, as well as nine other mortgage servicers, entered into an amendment to the Consent Order with the
OCC and the FRB to amend the 2011 Consent Order. This agreement ended the independent foreclosure review process created
by the Consent Order, replacing it with an accelerated remediation program. As a result of the amendment, the Company is
no longer incurring the consulting and legal costs of the independent third parties providing file review, borrower outreach,
and legal services associated with the Consent Order foreclosure file review. The Company has taken actions to satisfy its
commitments under the amendment to the Consent Order, and the Company's financial results at December 31, 2013 reflect
the expected costs of satisfying its financial obligations under the amendment to the Consent Order.
As a result of the FRB's review of the Company's residential mortgage loan servicing and foreclosure processing practices
that preceded the Consent Order, the FRB announced that it would impose a $160 million civil money penalty. The Company
expects to satisfy this obligation by providing consumer relief and certain cash payments as contemplated by the settlement
with the U.S. and the States Attorneys' General regarding certain mortgage servicing claims, which is discussed below at
"United States Mortgage Servicing Settlement and HUD Investigation of Origination Practices (FHA).”
United States Mortgage Servicing Settlement and HUD Investigation of Origination Practices (FHA)
In January 2012, the Company commenced discussions related to a mortgage servicing settlement with the U.S., through the
DOJ, and Attorneys General for several states regarding various potential claims primarily relating to the Company's mortgage
servicing activities. Since that time, the parties continued discussions regarding potential resolution. In September 2013, the
Company reached agreements in principle with the HUD and the DOJ to settle certain alleged civil claims regarding our
mortgage servicing and origination practices as part of the National Mortgage Servicing Settlement.
Separately, on April 25, 2012, the Company was informed of the commencement of an investigation by the HUD OIG relating
to STM's origination practices for FHA loans. Since that time, STM has provided documents as part of the investigation.
During the first quarter of 2013, the HUD OIG, together with the U.S. DOJ (collectively, the “Government”), advised STM
of their preliminary investigation findings, including alleged violations of the False Claims Act. Throughout 2013, the
Government and the Company engaged in discussions that accelerated in the third quarter and resulted in agreements in
principle to resolve certain civil and administrative claims arising from FHA-insured mortgage loans originated by STM from
January 1, 2006 through March 31, 2012. Pursuant to these two combined agreements in principle, the Company committed
to provide $500 million of consumer relief, to make a $468 million cash payment, and to implement certain mortgage servicing
standards.
The Company is continuing to negotiate definitive settlement terms for each of these matters and has certain substantive
disagreements with some of the positions being taken by the Government. The Company may be unable to resolve its
disagreements with the Government and may not reach a definitive settlement agreement as it relates to the FHA matter. If
the Company does not reach a definitive settlement agreement, then the Government may sue the Company alleging deficiencies
in the Company's FHA loan origination practices. The Company is not able to predict the effect that a failure to resolve the
FHA matter will have on the agreement in principle to settle the alleged claims regarding its mortgage servicing and origination
practices.
The Company's financial statements at December 31, 2013 reflected its estimated cost of the settlements, and the Company
is not able to predict what its ultimate cost to resolve these matters will be if it is not able to reach definitive settlement
agreements. Even if the Company were to reach a definitive settlement agreement with the Government to resolve the alleged
mortgage servicing and origination claims as contemplated by the agreement in principle, the Company faces the risk of being
unable to meet certain consumer relief commitments, resulting in increased costs to resolve this matter. Additionally, while
the Company does not expect the consumer relief efforts or implementation of certain servicing standards associated with the
settlements to have a material impact on its future financial results, this expectation is based on anticipated requirements of
the definitive agreements which the parties have not finalized.