* SunTrust discriminated against 20,000 borrowers, U.S. says
* Govt alleges SunTrust gave loans based on race, not risk
* SunTrust denies wrongdoing but agreed to the settlement
WASHINGTON, May 31 (Reuters) - SunTrust Bank Inc's mortgage-lending unit will pay $21 million to compensate African-American and Latino borrowers who were charged more for home loans based on race, the U.S. government said on Thursday.
The U.S. Justice Department alleged that SunTrust charged higher fees to more than 20,000 minority borrowers. The government reviewed prime loans during a four-year period and found between 2005 and 2009, SunTrust violated anti-discrimination laws while financing homeowners.
"At the core of the complaint is a very simple story: if you were African-American or Latino, you likely paid more for a SunTrust loan than equally or similarly qualified white borrowers," said Thomas Perez, assistant attorney general for the Justice Department's civil rights division. "You paid to what amounted to a racial surtax," he added.
The Justice Department looked at more than 850,000 loans made to borrowers in 34 different states and Washington, D.C., in assessing the penalty. The government found SunTrust did not always make loans based on the creditworthiness of borrowers, but often race.
SunTrust has since changed its policies, according to the Justice Department.
"SunTrust strongly believes in the principles of fair lending; we are pleased to have reached a settlement and put this matter behind us," said SunTrust spokesman Michael McCoy.
The review started after the Federal Reserve identified some patterns of discriminatory lending.
The government said SunTrust allowed loan officers and mortgage servicers to alter interest rates and fees, and knowingly discriminated against minorities. Whites with similar credit profiles received prime loans at lower costs.
The victims of the discrimination will be compensated, according to the Justice Department.
The agreement is one of the largest fair-lending cases the government has reached, second to the penalty Countrywide Financial Corp., now owned by Bank of America Corp., paid last year.