SunTrust Boosts Reserve for Mortgage Repurchases, Posts Q409 Loss
SunTrust Banks (STI) posted a net loss of $316.4mfor the fourth quarter of 2009, and a full-year net loss of $1.73bn, compared with $741m of net income in the previous year. Loss expectations in the mortgage unit drove the results, as the company bolsters its reserve for expected mortgage loan repurchases. Mortgage production-related income declined $40.2m in the quarter. SunTrust expects $220.2m of losses related to the repurchase of loans sold to third parties, compared with $60.4m in Q408. The quarterly noninterest income was up slightly, according to the earnings statement. SunTrust experienced lower mortgage market-related losses, but this good news was offset by a decline in mortgage production income. The mortgage unit's results were affected by anticipated losses on loan repurchases. SunTrust, like many banks that sell loans to third parties, is sometimes asked to bear losses when loans are determined to breach standard representations. The volume of requests for SunTrust to repurchase these mortgages rose each quarter in 2009, according to the earnings statement. Each quarter the company updates its loss estimate to reflect those requests, and as a result the reserve for loan repurchases rose by $77.2m to $199.9m as of year-end 2009. SunTrust said the volume of repurchase requests shifted during the course of the year from 2006 and earlier vintages towards 2007 and later vintages. "SunTrust believes its ultimate losses on newer vintages, particularly 2008 and later, may be lower than older vintages due to lower loss severities, a lower risk product mix, and enhanced underwriting guidelines and operating procedures," SunTrust said in the earnings statement. Mortgage servicing income increased $382.8m compared to Q408. The mortgage servicing portfolio was $178.9bn as of Dec. 31, 2009, up from $162bn as of Dec. 31, 2008. During the quarter, Sun Trust recorded $72.8m of net gains from the sale of available for sale securities, net of a $3.9m other-than-temporary impairment on private mortgage-backed securities. For the Q409, net charge-offs were $820.5m, down $185.4m, or 18.4%, from the previous quarter. The improvement drove the ratio of annualized net charge-offs to total average loans down 50 bps to 2.83%. Write to Diana Golobay.