$1B SunTrust mortgage settlement highlights weaknesses in FHA underwriting

A $968 million government settlement with SunTrust Banks that will provide $500 million in relief to underwater borrowers highlights flaws in the bank's underwriting of FHA loans that continued into 2012, The New York Times reports.

SunTrust grew its market share during the downturn as an FHA "direct endorsement lender" with the power to approve government-insured loans without FHA review. A 2011 internal audit found loans were approved with "missing documents, missing paystubs, appraisal issues, incorrect debt-to-income ratio" and other errors.

The Justice Department is seeking much bigger settlements with Citigroup and Bank of America over the sale of mortgage-backed securities to investors, the Times reports. Source: dealbook.nytimes.com.

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