SunTrust 2013 Annual Report Download - page 213

Notes to Consolidated Financial Statements, continued
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DOJ Investigation of GSE Loan Origination Practices
In January 2014, the DOJ notified STM of an investigation of the origination and underwriting of single family residential
mortgage loans sold by STM to Fannie Mae and Freddie Mac. STM is cooperating with the investigation, which is in its
preliminary stages. The DOJ and STM have not yet engaged in any dialogue about how this matter may proceed and no
allegations have been raised against STM.
Mortgage Modification Investigation
STM has been cooperating with the United States Attorney's Office for the Western District of Virginia and the Office of the
Special Inspector General for the Troubled Asset Relief Program (collectively, the “Western District”) in their investigation
of STM's administration of HAMP. More specifically, the Western District investigation focuses on whether, during 2009 and
2010, STM harmed borrowers and violated civil or criminal laws by failing to properly process applications for modifications
of certain mortgages owned by the GSEs by devoting insufficient resources to its loss mitigation function and making
misrepresentations to borrowers about timelines and other features associated with the HAMP modification process. The
Western District and STM are engaged in dialogue about how this matter may proceed. While no determinations have been
made, the Western District has indicated that they intend to pursue some form of action and may impose substantial penalties
on STM. STM continues to cooperate with the investigation and believes that it has substantial defenses to the asserted
allegations.
Residential Funding Company, LLC v. SunTrust Mortgage, Inc.
STM has been named as a defendant in a complaint filed December 17, 2013 in the Southern District of New York by Residential
Funding Company, LLC. ("RFC"), a Chapter 11 debtor-affiliate of GMAC Mortgage, LLC., alleging breaches of
representations and warranties made in connection with loan sales and seeking indemnification against losses allegedly suffered
by RFC as a result of such alleged breaches.
SunTrust Mortgage Lender Placed Insurance Class Actions
STM has been named in three putative class actions similar to those that other financial institutions are facing which allege
that the Company acted improperly in connection with the practice of force placing homeowners’ insurance in certain instances.
Generally, the plaintiffs in these actions allege that STM has violated various duties by failing to properly negotiate pricing
for force placed insurance and by receiving kickbacks or other improper benefits from the providers of such insurance. The
first case, Timothy Smith v. SunTrust Mortgage, Inc. et al., is pending in the United States District Court for the Central District
of California. STM filed a motion to dismiss this case and this motion was granted in part and denied in part. The second case,
Carina Hamilton v. SunTrust Mortgage, Inc. et al., is pending in the U.S. District Court for the Southern District of Florida.
STM filed a motion to dismiss in this case that remains pending. The third case, Yaghoub Mahdavieh et al. v. SunTrust Mortgage,
Inc. et al., is pending in the U.S. District Court for the Northern District of Georgia. STM has filed a motion to dismiss and
a motion to transfer in this case. The Court granted the motion to transfer this case to the Southern District of Florida.
SunTrust Mortgage, Inc. v. United Guaranty Residential Insurance Company of North Carolina
STM filed suit in the Eastern District of Virginia in July 2009 against United Guaranty Residential Insurance Company of
North Carolina (“UGRIC”) seeking payment of denied mortgage insurance claims on second lien mortgages. STM's claims
were in two counts. Count One involved a common reason for denial of claims by UGRIC for a group of loans. Count Two
involved a group of loans with individualized reasons for the claim denials asserted by UGRIC. UGRIC counterclaimed for
declaratory relief involving interpretation of the insurance policy involving certain caps on the amount of claims covered and
whether STM was obligated to continue to pay premiums after any caps were met. The Court granted STM's motion for
summary judgment as to liability on Count One and, after a trial on damages, awarded STM $34 million along with $6 million
in prejudgment interest on August 19, 2011. The Court stayed Count Two pending final resolution of Count One. On September
13, 2011, the Court awarded an additional $5 million to the Count One judgment for fees on certain issues. On UGRIC's
counterclaim, the Court agreed that UGRIC's interpretation was correct regarding STM's continued obligations to pay premiums
in the future after coverage caps are met. However, on August 19, 2011, the Court found for STM on its affirmative defense
that UGRIC can no longer enforce the contract due to its prior breaches and, consequently, denied UGRIC's request for a
declaration that it was entitled to continue to collect premiums after caps are met.
On February 1, 2013, the Fourth Circuit Court of Appeals (i) upheld the judgment to STM of $45 million ($34 million in
claims, $6 million in interest, and $5 million in additional fees); and (ii) vacated the ruling in STM's favor regarding the
defense STM asserted to UGRIC's claim that STM owes continued premium after the caps are reached. On February 15, 2013,
UGRIC filed a motion asking the Fourth Circuit Court of Appeals to re-hear its appeal. This request was denied on March 4,