SunTrust Settles Legacy Mortgage Issues with Feds and GSEs

SunTrust Banks, Inc., is ponying up millions to resolve mortgage-related legal matters with several federal agencies and settle mortgage repurchase claims from Fannie Mae and Freddie Mac.

The Atlanta-based lender announced Thursday that its third-quarter numbers will be negatively impacted by these resolution actions, resulting in an after-tax earnings reduction of $179 million, or $0.33 per share.

“SunTrust is pleased to have resolved a number of legacy mortgage matters. These settlements reduce uncertainty, further improve our risk profile, and enhance our ability to focus on future growth,” said William H. Rogers, Jr., chairman and CEO of SunTrust Banks.

SunTrust reached agreements with HUD and theDepartment of Justice to settle claims related to SunTrust’s origination of mortgages insured by theFederal Housing Administration (FHA) and its portion of the National Mortgage Settlement pertaining to both servicing and origination practices. SunTrust’s commitment under the agreements includes consumer relief of $500 million and a cash payment of $468 million.

The Federal Reserve said separately that it issued $160 million in monetary sanctions against SunTrust “for unsafe and unsound processes and practices in residential mortgage loans servicing and foreclosure processing.” The Fed’s penalty terms are similar to the penalties it issued last year against five other mortgage servicing organizations involved in the National Mortgage Settlement with state attorneys general and federal agencies.

According to the Federal Reserve, SunTrust is required to pay the amount of the sanction not spent within two years of December 31, 2013, on providing borrower assistance or to fund nonprofit housing counselors. The Federal Reserve required SunTrust to take corrective measures related to its servicing and foreclosure practices as part of an enforcement action levied against the company in April 2011, along with 13 other servicing organizations.

SunTrust also reached agreements with Fannie Mae andFreddie Mac to resolve outstanding and potential loan repurchase obligations.

“Fannie Mae’s agreement with SunTrust is another sign of progress in addressing outstanding issues so that the housing market can continue to strengthen,” said Bradley Lerman, Fannie Mae’s EVP and general counsel. “This agreement resolves repurchase issues and compensates taxpayers fairly, allowing Fannie Mae and SunTrust to move forward with an even stronger relationship.”

Lerman says the GSE expects to complete its reviews of legacy loans for potential repurchase by the end of the year. Fannie Mae entered into similar repurchase agreements with Bank of America and Citi earlier this year.

In the third quarter, SunTrust reserved an additional $63 million, which included a $15 million previously disclosed charge related to the Freddie Mac agreement that was initially announced September 30, in which the bank agreed to pay a total of $65 million to cover repurchase obligations on 312,000 soured loans. The subsequent settlements forged this week with both GSEs cover a broader population of loans than accounted for by the company’s existing repurchase reserve, SunTrust explained.

SunTrust also disclosed that separately, it entered into an agreement to sell mortgage servicing rights (MSR) on approximately $1 billion in unpaid principal balance of predominantly delinquent mortgages. As a result of an expanded review of its servicing advance practices conducted in the third quarter, SunTrust refined its loss estimates and valuation methodologies for this MSR sale and other servicing advances, resulting in an additional $96 million charge to the company’s Q3 earnings.

 

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