The Justice Department on Tuesday announced the $968 million deal with SunTrust Mortgage, a Virginia-based lender and subsidiary of SunTrust Banks.
The three-year settlement is with Wisconsin and 48 other states, the District of Columbia, the U.S. Department of Justice (DOJ) and the U.S. Department of Housing and Urban Development (HUD).
Attorney General Eric Holder said SunTrust's conduct is a "prime example" of the widespread underwriting failures that helped bring about the recent financial crisis.
As part of the deal, SunTrust has agreed to provide $500 million in homeowner relief and $418 million to resolve allegations that it underwrote bad loans.
SunTrust chief executive William Rogers said in a statement that the bank was pleased to have resolved the allegations.