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Agency Shortcut mortgages

Michael McCoy, a SunTrust spokesman, declined to comment on the whistle-blower's allegations, saying the bank was unaware of the complaint. He said in a statement that the bank's policy was to use Fannie's and Freddie's guidelines when underwriting mortgages that would be sold to them. Nevertheless, the complaint details how it says some SunTrust mortgage sales representatives manipulated an automated loan underwriting system to gain Fannie's and Freddie's approval for mortgages that did not meet those companies' standards. These loans, sold mostly to Fannie, were called Agency Shortcut mortgages.

¶ SunTrust sales representatives entered fabricated income and asset figures into the bank's exclusive version of Fannie Mae's Desktop Underwriting system, the complaint says. Fake numbers, it says, would generate automatic approvals for unqualified borrowers, "at the same time preventing underwriters from exercising proper oversight."

¶ That oversight was thwarted because once the system's approvals kicked in, the complaint contends, underwriters in SunTrust's due diligence department could not stop the loans from being sold to Fannie or Freddie. There was no turning off the assembly line.

¶ The complaint contains several internal SunTrust documents to support its allegations. One is a promotional piece for sales reps that explains the Agency Shortcut mortgage. "It's a SISA (Stated Income/Stated Asset) at full doc pricing," it says. Translation: undocumented loans carried the same interest rate as a fully documented version.

Because of fabrications, the complaint says, Fannie Mae's system recognized these loans as fully documented. But according to the complaint, the Agency Shortcut mortgage waived property inspections and did not require the borrower to sign the document that allows the Internal Revenue Service to provide a prospective lender with a borrower's income. In addition, borrowers of these loans could have a debt-to-income ratio of up to 64.99 percent, an onerous level.

¶ SunTrust terminated the Agency Shortcut program in April 2008, the complaint says. Two months before, Fannie Mae limited the number of times a sales rep could enter information on a single borrower, according to the complaint. This might have been in recognition that its underwriting system was being gamed by repeated efforts to gain a loan approval.

¶ The complaint contends that SunTrust originated "tens of billions of dollars" in Agency Shortcut mortgages. It is unclear how many of these loans landed at Fannie or Freddie; Suntrust's financial filings say the bank sold $98.6 billion in total loans to Fannie and Freddie during the three years ended 2008.

¶ Support for the whistle-blower's descriptions of lax lending at SunTrust seems apparent from the boatload of loans sold to Fannie and Freddie during the mortgage mania that the bank has had to buy back. Such repurchases are typically done with loans that failed to meet standards -- like borrower quality -- or other characteristics promised to the purchasers at the time of the sale.

¶ Over the last three calendar years, according to its financial statements, SunTrust has repurchased $2.235 billion of mortgages, the bulk from Fannie. Fannie requests these repurchases, and documents show that Suntrust's constituted the fifth-largest amount among lenders at the end of 2012. It ranked not far below the much larger JPMorgan Chase.

¶ And at the end of 2012, SunTrust said it had $655 million in repurchase requests outstanding. Mr. McCoy, the spokesman, said the bank's buybacks reflected its heavy concentration of lending in Georgia and Florida during the bubble.

¶ "We sold a higher percentage of loans to Fannie Mae than did some of our competitors," he said, "so it also stands to reason that our demands from Fannie Mae could be higher than some peers." The loan types that included the Agency Shortcut have accounted for just 20 percent of the bank's buybacks, he said.


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