SunTrust 2014 Annual Report Download - page 180

Notes to Consolidated Financial Statements, continued
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associated with the settlements to have a material impact on its
future financial results.
DOJ Investigation of GSE Loan Origination Practices
In January 2014, STM received notice from the DOJ of an
investigation regarding the origination and underwriting of
single family residential mortgage loans sold by STM to Fannie
Mae and Freddie Mac. The DOJ and STM have not yet engaged
in any material dialogue about how this matter may proceed and
no allegations have been raised against STM. STM continues to
cooperate with the investigation.
Mortgage Modification Investigation
In the third quarter of 2014, STM resolved claims by 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 relating to STM's administration of HAMP.
Pursuant to the settlement, SunTrust paid $46 million, including
$20 million to fund housing counseling for homeowners, $10
million in restitution to Fannie Mae and Freddie Mac, and $16
million to the U.S. Treasury, and transferred its minimum
consumer remediation obligation of $179 million (which may
increase to a maximum of $274 million) to the required deposit
account to be controlled by a third party claims administrator.
The claims administrator will validate consumers eligible for
remediation and administer the payment process. The Company
incurred a $204 million pre-tax charge in the second quarter of
2014 in connection with this matter, which includes its estimate
of the consumer remediation obligation. A copy of the Restitution
and Remediation Agreement dated as of July 3, 2014 between
SunTrust Mortgage, Inc. and the United States of America is filed
as Exhibit 10.15 to this report. The financial statements at
December 31, 2014 reflect the estimated cost of the anticipated
requirements of fulfilling these commitments.
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. The case
was transferred to the United States Bankruptcy Court for the
Southern District of New York. The Company filed a motion to
transfer the case back to the District Court, which is pending. The
litigation remains active in the Bankruptcy Court. Discovery has
commenced.
SunTrust Mortgage Lender Placed Insurance Class Actions
STM has been named in four putative class actions similar to
those that other financial institutions are facing which allege that
STM 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.
Three of the cases involve activity relating to STM’s relationship
with QBE First Specialty as STM’s lender placed insurance
vendor. 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. The third case, Yaghoub Mahdavieh et al. v. SunTrust
Mortgage, Inc. et al., was filed in the U.S. District Court for the
Northern District of Georgia. STM filed a motion to dismiss and
a motion to transfer the case. The Court granted the motion to
transfer this case to the Southern District of Florida. STM has
entered into an agreement to settle these cases in the context of
a nationwide settlement class, which was approved by the Court
on October 24, 2014. STM’s liability in this settlement has been
fully accrued and is reflected in the Company's financial
statements at December 31, 2014. However, the plaintiffs in
Mahdavieh have opted out of the class action settlement and their
case will proceed on an individual basis. The fourth case,
Douglas Morales v. SunTrust Mortgage, et al, is pending in the
U.S. District Court for the Southern District of Florida and
involves activity relating to STM’s relationship with Assurant as
its lender placed insurance vendor. The case is in its early stages.
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 MI
claims on second lien mortgages. UGRIC counterclaimed for
declaratory relief involving interpretation of whether STM was
obligated to continue to pay premiums after any caps were met.
Previously, the Court granted STM's motion for summary
judgment on its claim and awarded STM $34 million along with
$6 million in prejudgment interest and $5 million in other
damages. This award was affirmed on appeal. On UGRIC's
counterclaim, the Court granted judgment to SunTrust and held
that UGRIC was not entitled to additional premiums from STM.
UGRIC appealed this finding. The parties reached a settlement
during the fourth quarter of 2014, which resulted in the dismissal
of UGRIC’s appeal and resolution of all remaining issues.
SunTrust Mortgage Reinsurance Class Actions
STM and Twin Rivers Insurance Company ("Twin Rivers") have
been named as defendants in two putative class actions alleging
that the companies entered into illegal “captive reinsurance”
arrangements with private mortgage insurers. More specifically,
plaintiffs allege that SunTrust’s selection of private mortgage
insurers who agree to reinsure with Twin Rivers certain loans
referred to them by SunTrust results in illegal “kickbacks” in the
form of the insurance premiums paid to Twin Rivers. Plaintiffs
contend that this arrangement violates the Real Estate Settlement
Procedures Act (“RESPA”) and results in unjust enrichment to
the detriment of borrowers. The first of these cases, Thurmond,
Christopher, et al. v. SunTrust Banks, Inc. et al., was filed in
February 2011 in the U.S. District Court for the Eastern District
of Pennsylvania. This case was stayed by the Court pending the
outcome of Edwards v. First American Financial Corporation,
a captive reinsurance case that was pending before the U.S.
Supreme Court at the time. The second of these cases, Acosta,
Lemuel & Maria Ventrella et al. v. SunTrust Bank, SunTrust
Mortgage, Inc., et al., was filed in the U.S. District Court for the
Central District of California in December 2011. This case was