Was the SunTrust Agency “Shortcut” the Biggest Fraud in Mortgage History?


Was the SunTrust Agency “Shortcut” the Biggest Fraud in Mortgage History?

Via http://www.ritholtz.com

After reading Gretchen Morganson’s article on the front page of the business section last week (“Note to New S.E.C. Chief: The Clock Is Ticking“) we are confronted with a massive potential legacy loan fraud at SunTrust Bank against Fannie Mae — it seems to me that this is very similar to the $3 billion in potential damage awards in the Countrywide case… U.S. v. Bank of America/Countrywide, et al

I spoke with a veteran loan originator with knowledge of the SunTrust Agency“Shortcut” (great name!) loan program told me it was one of SunTrusts’ top selling loans during the bubble years and sold exclusively to Fannie Mae. The fraud occurred from circa 2005 to 2008, as SunTrust retail loan officers, wholesale account executives, and approved mortgage brokers routinely “laddering” income and asset inputs into the SunTrust “Fannie Mae custom DU” loan approval system in order to achieve the “Shortcut” finding, which then prevented SunTrust loan underwriters from doing proper due-diligence.

These loans were in fact “Alt-A” loans — your traditional low doc loans, with missing income and spotty asset verification such as tax-returns, w-2′s, pay stubs, bank statements etc — but originated using much more lenient fully documented loan guidelines and interest rates and sold to Fannie Mae as “full-doc”.

Bottom line: Agency “Shortcut” loan programs, exclusively originated by SunTrust, made loan underwriters impotent in their due-diligence; these Alt-A loans that should have carried higher interest rates and been originated using more stringent guidelines; were sold to Fannie Mae as premium full-documented loans, and have resulted in abnormally high default and loss rates relative to true “fully documented” loans.

All of these were top items in the $3 BILLION “Countrywide Hustle” case announced last October.

The big difference, however, between the Countrywide “Hustle” and the SunTrust “Shortcut” fraud is that the “Hustle” concerned only $6 billion in origination. The “SunTrust Shortcut” originations — per Gretchen Morganson’s article — were “$10s of billions of dollars” perhaps making it the largest whole loan fraud in the history of the mortgage and housing crisis.



3 Responses to “Was the SunTrust Agency “Shortcut” the Biggest Fraud in Mortgage History?”
  1. Sarah says:

    It’s hard to believe Suntrust and Countryfraud were the only ones up to such hijinks. I also find it hard to believe Fannie didn’t know what the “left hand was a doin’ to the right hand.” I don’t have any faith in any agency, the SEC doesn’t seem to do much of anything and Mary Jo is another appointed crony.

    • neidermeyer says:

      Suntrust is the weakest of all the major or super-regional banks ,, they failed the last audit ,, one of only 2 I believe … SunTrust in their standard mortgage note ALWAYS names MERS as the mortgagor … lots of weird and wonderful stuff in a SunTrust loan … I don’t think they actually had enough assets even back in the 2000’s ,, Can anyone tell me who/if their loans were table funded by another bank/lender?

  2. project_wolverine says:

    Uncle Sam’s Deadbeat Mortgage Lenders
    Asher Hawkins, 03.01.10, 02:54 PM EST
    Will these 10 firms’ high default ratios wind up costing taxpayers a bundle?

    The Feds’ Next Housing Debacle
    America’s Most Troubled Real Estate Markets
    Mortgage Defaults May Kill Housing Recovery

    If you read the news everyday, you’ve probably seen more and more headlines like these in recent months: “Government Shuts Down Troubled Mortgage Firm” and “HUD Probes High-Default Lenders.”

    Such language might lead you to believe that the feds are weeding out bum lenders. What you’d be missing is that even after the feds zero in on suspect mortgage outfits, there’s still a good chance they will continue to put taxpayer dollars in jeopardy for years to come.

    For a Top 10 list of Uncle Sam’s biggest deadbeat lenders, click here.

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