SunTrust Mortgage reached an agreement with the Department of Justice to resolve allegations in a federal lawsuit that its lending practices were discriminatory against African-Americans and Hispanics.
The Richmond, Va.-based lender will pay the DOJ $21 million. According to Thomas Perez, assistant attorney general for the civil rights division, this is the second largest fair lending settlement in the department’s history, behind only the $335 million agreement that was reached last year with Countrywide.
“SunTrust strongly believes in the principles of fair lending. We are pleased to have reached a settlement and put this matter behind us,” said Mike McCoy, a spokesperson for SunTrust Mortgage.
The settlement, which is still subject to court approval, comes after the DOJ investigated the lender for two years reviewing internal company documents and data on more than 850,000 residential mortgage loans SunTrust originated between 2005 and 2009.
According to the DOJ’s investigation, SunTrust violated the Fair Housing Act and Equal Credit Opportunity Act by charging more than 20,000 African American and Hispanic borrowers higher fees and interest rates based on their race and not on borrower risk.
Specifically, about 200 retail offices operated by SunTrust in the Southeast and mid-Atlantic regions of the nation, as well as the lender’s national network of mortgage brokers, originated these loans.
At the time when the allegations occurred, SunTrust Mortgage’s business practices allowed its loan officers and mortgage brokers to vary a loan’s interest rate and other fees from the price it set based on the borrower’s objective credit-related factors. As a result, Perez said African-Americans and Hispanics were charged “a racial surtax that ranged from hundreds to thousands of dollars” in order to obtain a SunTrust loan because of their skin color.
“Racial or other illegal discrimination has no place in our credit markets,” said Federal Reserve Board Gov. Elizabeth Duke. “We are pleased that this settlement is designed to ensure fair access to credit.”
Even before the lawsuit was settled, SunTrust decided to implement new policies that reduce the discretion its loan officers and brokers have when varying a loan’s interest rate and any additional fees the borrower is charged with from the price it set based on the borrower’s overall credit risk. Any change that wants to be made needs to be documented and reviewed by a supervisor, which was not the case during the DOJ’s investigation. These policies restrict compensating loan officers and brokers based on the terms or conditions of a particular loan.
As part of the settlement, SunTrust Mortgage is required to keep its current policies of implementing fair lending practices for at least three years. In addition, the lender has to monitor any signs of discriminatory lending.
The proceeds of the settlement will be used to compensate the victims who were located in 34 states and the District of Columbia when the discrimination occurred.
“This settlement demonstrates that the Department of Justice takes seriously its responsibility to investigate mortgage lending practices during the mortgage boom years and, when the evidence shows the law was broken, to obtain compensation for victims of illegal conduct,” said Perez.
“We will, however, work constructively with responsible lenders like SunTrust Mortgage that are willing to take the necessary steps to ensure equal credit opportunity for all borrowers. We commend SunTrust Mortgage for taking action to implement strong fair lending policies even before they knew the full results of our investigation.”
