SunTrust Bank (STI) settled lingering mortgage issues, entering into game-changing agreements this week with Fannie Mae and other government agencies.
The announcement follows on the heels of a similar agreement reached last week, when SunTrust inked a $65 million deal with Freddie Mac to resolve legacy representations and warranties liabilities stemming from its previous sale of 312,000 loans to the enterprise.
The deals announced this week effectively dissolved some of the bank's existing loan repurchase risk, while also settling FHA-insurance claims raised against SunTrust by the Department of Justice and the Department of Housing and Urban Development.
After taxes, the Atlanta bank expects to feel a $179 million, or 33 cent per share, impact on its third-quarter earnings from the most recent settlements.
Overall, the agreements are a boon for SunTrust, allowing it to escape future unforeseen risk and resolve legacy mortgage issues.
The bank released a summary of the latest settlements Thursday.
One of the major deals involves an agreement between SunTrust, HUD and the DOJ. The three parties agreed to settle government claims over SunTrust’s origination of FHA-insured mortgages.
In addition, the bank and government agencies resolved lingering servicing and origination issues raised under SunTrust’s portion of the National Mortgage Servicing Settlement. These two issues alone commit SunTrust to $500 million in total consumer relief and a cash payment of $468 million.
SunTrust already incurred a $323 million charge in the third quarter from these particular deals.
But the settlements don’t stop there.
SunTrust also resolved lingering mortgage repurchase risk issues with Fannie Mae and Freddie Mac, reserving $63 million in the third quarter, to deal with just this issue. The $63 million reserved includes a previously disclosed charge of $15 million tied to the Freddie settlement.
After resolving the repurchase risk issue, Fannie Mae’s Executive Vice President and General Counsel Bradley Lerman released a public statement.
"Fannie Mae’s agreement with SunTrust is another sign of progress in addressing outstanding issues so that the housing market can continue to strengthen," Lerman said. "This agreement resolves repurchase issues and compensates taxpayers fairly, allowing Fannie Mae and SunTrust to move forward with an even stronger relationship."
Fannie Mae said it plans to complete all bank reviews related to legacy loan repurchase risk by the end of 2013. The SunTrust agreement mirrors deals already inked with Bank of America (BAC) and Citi (C).
SunTrust also expanded the bank's review of “servicing advance practices,” while entering into an agreement to sell MSRs on $1 billion of unpaid principal balance tied to mostly delinquent home loans.
"As a result of the review and the MSR sale, SunTrust refined its loss estimates and valuation methodologies for servicing advances, resulting in a $96 million charge to third quarter earnings," the bank said.