From a longstanding Housing analyst:

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.


In other words, willful purposeful fraud for profit resulting in taxpayer obligations for many billions of dollars.

But whatever you do, you cannot prosecute any banks for this — we don’t want to disrupt the global economy! 


Category: Credit, Legal, Real Estate, Think Tank

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

6 Responses to “Was the SunTrust Agency "Shortcut" the Biggest Fraud in Mortgage History?”

  1. tbuhl says:

    I first reported in detail on this alleged SunTrust fraud in Nov for -a finance trade publication. You can see some of the story here that is not behind a paywall.

    The SEC started investigating SunTrust last year for how they abused the Angency ‘Shortcut’ program

  2. tbuhl says:

    From a long standing housing analyst – Yes, other housing analysts have been warning about Suntrust for some time now. So why didn’t you pick up on this in November when it was first reported Barry?

  3. [...] to hold the SEC accountable for not moving faster on the Suntrust case. A case that Barry Ritholtz headlined this week could be the “biggest fraud in mortgage history”.I reported in November for [...]