Another bank shields itself from GSE repurchase risk

SunTrust pays Freddie Mac $65M to resolve legacy putback claims

Following on the heels of a major Wells Fargo (WFC) settlement, SunTrust (STI) inked a $65 million deal with Freddie Mac to resolve legacy representations and warranties liabilities stemming from the bank's sale of 312,000 loans to Freddie.

SunTrust, like Wells Fargo, could have faced a GSE putback if the enterprise had decided to issue a buyback request for loans sold off to the enterprise years ago. Buybacks are requested when an enterprise finds loan characteristics that contrast with representations made in the initial sales contract.

Rather than fighting or waiting for a big financial loss, banks are jumping ahead, signing onto settlements and moving forward to shield themselves from putback risk.

Most recently, Wells Fargo agreed to pay $780 million in cash to Freddie Mac to resolve repurchase liabilities.

It makes senses. At a time when banks are trying to enhance their own capital positions and balance sheets, lingering risks create unseen financial headwinds—unless they are negotiated away early on.

SunTrust was able to do just that.

In its settlement, the bank agreed to compensate Freddie Mac for all outstanding and future potential losses.

In exchange, the GSE will release SunTrust from existing and future repurchase obligations, the bank said.

"While the majority of the settlement agreement is covered by SunTrust's existing reserves for mortgage repurchases, SunTrust expects to incur an approximate $15 million incremental mortgage provision expense in the third quarter of 2013 related to this settlement agreement,” SunTrust said in a public statement.

The loans in question were funded in the eight-year period stretching from 2000 to 2008.

Most Popular Articles

3d rendering of a row of luxury townhouses along a street

Log In

Forgot Password?

Don't have an account? Please