First Horizon National Corp. (FHN) said it will incur $272 million in pre-tax charges in the second quarter as the firm ups its loss reserves to cover pending mortgage repurchase claims from Fannie Mae and Freddie Mac, the company reported in a securities filing.
Buybacks or putbacks occur when the government-sponsored enterprises force an originator to repurchase a loan that contains material underwriting or origination deficiencies.
Three months ago, First Horizon’s reserve for mortgage repurchase exposure sat at $161 million. For a long time, the firm was unable to quantify its exact repurchase exposure because it was no longer servicing many of the loans in question.
In its filing with the SEC, First Horizon says, “Over the past several years the GSEs have requested First Horizon to repurchase loans based on a variety of claimed deficiencies, most typically that loan documentation was inadequate or incorrect.”
Over the past few months, First Horizon obtained more information on loans sold to the GSEs. The information released exposed First Horizon to additional repurchase risk, prompting the firm to increase its cushion for buy-back losses.
In the second quarter alone, the firm expects to realize a $60 million loss to repurchase activity, which will be charged against the firm’s loss reserve.
By the end of this month, First Horizon expects its entire mortgage repurchase loss reserve to sit at $351 million.