“SunTrust had no effective document management system in place to process and retain the borrowers’ applications and supporting documentation. When the HAMP applications poured in, SunTrust put them in stacks on the floor without organization. At one point, the stacks of opened and unprocessed HAMP applications were so voluminous that their weight buckled the floor.” [Page 12, Restitution and Remediation Agreement between Suntrust and the U.S. Department of Justice, July 3, 2104.]
Why is it that so many banks select names that include euphonious sounding words such as “Trust,” “Fidelity” “Equity,” “Ally,” “Security,” “Integrity,” etc., etc.? Or, lacking a pleasant sounding adjective, they select early presidential surnames, usually Washington, Jefferson, Lincoln, or a non-presidential name, such as Franklin. It’s because they want us to trust them, right? But if someone continuously said: “You can trust me,” wouldn’t you begin to wonder if you really should trust them? Honest people don’t need to continue to remind us that they are honest.
This brings us to SunTrustMortgage, a relatively large banking institution that appears to have selected its name because they could only be trusted while the sun was up; but when it went down, they apparently felt entitled to engage in all sorts of mischief.
On July 3, 2014 SunTrust entered into a settlement agreement with the feds to pay up to $320,000,000 to settle claims that it made misrepresentations to borrowers seeking loan modification help through the government’s HAMP program.[1] The amount of the settlement is paltry compared to some of the recent Big Bank settlements in the billions of dollars. But the misdeeds recounted in the settlement agreement make for interesting reading.
It seems that suffering from the combined effects of jealousy and vanity [the corporate version of “Keeping up with the Jones”], SunTrust was embarrassed that its loan mod numbers were so low, while its peers in the industry appeared much more successful with theirs. So they struck upon an idea: Why not gin up interest by sending out flyers to thousands of their borrowers with distressed housing issues, and promise them the Moon? Make impossible claims; give hope to struggling homeowners; and Voilà! SunTrust would have respectable loan mod numbers and no longer be the laughing stock at the next industry Christmas parties!
However, apparently, none of the brainiacs with MBAs gave any thought to what might happen if their plan actually worked. Would they have sufficient staffing? Could they be trained quickly enough to meet the demand? What would they do if they couldn’t keep up with borrower demand? And significantly, would any borrowers be injured by false promises?
As it turns out, SunTrust did what all self-respecting banks did during the depths of the recession; they gratefully accepted millions in taxpayer TARP funds, and then turned their backs on thousands of their distressed borrowers they had publicly committed to help. This is why this story is all too familiar, especially for those borrowers who sought HAMP loan mods during those years. To be sure, SunTrust was not alone, but for July 2014, it now gets to stand in the dock and admit to the same misdeeds so many of its banking brethren have admitted to doing over the years.
Herewith are snippets of factual statement gleaned from the Restitution and Remediation Agreement (here) admitted to by SunTrust:
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Starting in August 2009, the U.S. Department of Treasury’s Office of Financial Stability began publicly publishing the number of HAMP modifications processed by all servicers through a monthly “Making Home Affordable Program Servicer Report.” As of July 2009, SunTrust had approximately 5,500 borrowers who had applied for HAMP but who were waiting for SunTrust to decide if they qualified; SunTrust had placed 1,800 borrowers into a trial period plan; and SunTrust had not awarded any permanent HAMP modifications.
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SunTrust wanted to increase the number of borrowers applying for HAMP so that it would not be criticized for the small number of borrowers it had in the HAMP program compared to other servicers. SunTrust thus started offering stated-income modifications in addition to verified ones. SunTrust also began sending mass solicitations to borrowers inviting them to apply for HAMP and offering trial modifications based on stated income. SunTrust mailed these solicitations to tens of thousands of borrowers between 2009 and 2010.
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These mass solicitations consisted of a standard cover letter and several attachments, as well as a trial period plan agreement (collectively “the HAMP Package”). The trial period plan gave the borrower an estimated modified mortgage payment and a three or four month trial plan schedule with due dates for making the new mortgage payments. The HAMP Packages touted why SunTrust customers should apply for HAMP and encouraged them to do so as quickly as possible.
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In the HAMP Packages, SunTrust made, among others, the following representations to its customers on how the program would work (the “Statements”):
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SunTrust stated in the “Frequently Asked Questions”: “Q: How long will it take to process my modification request and determine if I qualify for the program? [Answer] It may take up to 20 days for us to receive and review your documents. We will process your modification request as quickly as possible.”
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Trial Duration: Borrowers would be put on trial periods lasting only three (or in certain cases four) months.
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SunTrust did not have adequate personnel, infrastructure, and technological resources in place to process the paperwork, render decisions, and communicate with and about borrowers as represented in 2009 and 2010.
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Upon sending the large-scale solicitations in August 2009, SunTrust received upwards of 100,000 calls per month from borrowers interested in a loan modification, but SunTrust did not hire an adequate number of call center employees to answer the phones.
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To help address the call volume, SunTrust instead required its loan modification negotiators – those employees who were supposed to review and decide borrowers’ HAMP applications – to spend the vast majority of their time answering phones rather than working on applications. When managers requested that SunTrust hire additional call center employees and/or negotiators, or otherwise provide alternative solutions, those requests were not sufficiently fulfilled.
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The staff that did exist was not sufficiently trained. For example, in 2009 and 2010, the SunTrust negotiators that worked on HAMP applications received no formal training on how to comply with the HAMP guidelines or appropriately communicate with the borrowers regarding the HAMP process.
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Moreover, SunTrust had no effective document management system in place to process and retain the borrowers’ applications and supporting documentation. When the HAMP applications poured in, SunTrust put them in stacks on the floor without organization. At one point, the stacks of unopened and unprocessed HAMP applications were so voluminous that their weight buckled the floor.
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Without a system to process, organize, and retain applications, borrowers’ paperwork was routinely difficult to locate or was lost and had to be resubmitted – often multiple times – causing further delays.
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All of these deficiencies resulted in a significant backlog of borrowers who were waiting on a decision from SunTrust as to whether they qualified for HAMP. Because SunTrust’s HAMP program was under-resourced and under-funded, the backlog grew only deeper. Month after month, SunTrust had a backlog of tens of thousands of borrowers waiting to apply for HAMP, waiting for SunTrust to send a trial period agreement, or waiting to hear whether they qualified for their much-needed mortgage relief.
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For example, SunTrust understood that its negotiators should have no more than 250 loan modification applications in each of their queues, but in the spring of 2010, some SunTrust negotiators had upwards of 3,000 files in each of their queues.
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Far from reviewing applications within 20 days and rendering a decision within the three or four month trial period that was stated in the HAMP Packages, SunTrust failed to give most borrowers a decision for months, without any explanation or update. As a result, customers who applied for HAMP were in limbo – stuck on extended trial periods that often lasted close to a year, and, in worst case scenarios, some borrowers were on extended trial periods for two years or more.
From the “Be Careful What You Wish For” department, the Restitution and Remediation Agreement stipulated to by SunTrust and its attorneys:
These mass solicitations resulted in exactly what SunTrust wanted: many more borrowers were put on HAMP trials and SunTrust no longer appeared deficient compared to its peers. But while SunTrust got borrowers in the door, it did not get them through the HAMP application process in the manner stated in the HAMP Packages.
But never fear! We are assured that:
The executives and managers responsible for the misconduct described herein are no longer with SunTrust, and have been replaced with individuals who have committed to an effective loss mitigation program and to remedying the harms suffered by SunTrust customers.
Uno Problemo: It’s the corporate culture that permits unethical behavior. How will the firing of underlings change any of that?
[1] Quoting from the settlement agreement: “In exchange for the monetary payments and other corrective actions by the company, the government agreed not to prosecute the company for crimes related to the alleged conduct.”
