Loan file requests from Fannie Mae and Freddie Mac at Suntrust (STI) are shifting to mortgages that are in earlier stages of delinquency, signaling to the bank’s executives that mortgage repurchase demands will soon decline.
Repurchase demands rose 9% to $489 million in the second quarter from $448 million in the first for the Atlanta-based bank.
Repurchase demands and provisions peaked in 2011 at Suntrust, more specifically in the fourth quarter. However, the nature of the full file requests, which are a precursor to future repurchase demands, are moving away from loans secured by foreclosed homes.
“Given those trends, it looks to us that demand will decline over time," Suntrust Chief Executive Bill Rogers said on a Friday conference call. "There’s always going to be volatility, but directionally, given what we’re seeing with full file request demands, it will decline.”
Fitch Ratings sees no sign of repurchase claims ending in the near future for both major and regional banks. The fiirm said there's potential for midtier financial firms and large regional banks to feel earnings pressure if material repurchase claims strike them in the near future.
Suntrust reported Friday that net income available to common shareholders jumped 55% in the second quarter to $270 million, or 50 cents a share, from $174 million, or 33 cents a share, a year earlier.
Mortgage origination income totaled $103 million in the second quarter, blasting off from the $4 million earned a year ago in the period. The dramatic rise is due to higher loan production and increased gain on sale margins, partially offset by a $65 million increase in the mortgage repurchase provision.
In the first quarter, Suntrust’s income from mortgage production came in at $63 million. About $18 million in net gains from the sale of government guaranteed mortgages and a $20 million decrease in the mortgage repurchase provision drove the $40 million sequential quarter increase.
As of June 30, the bank’s reserve for mortgage repurchases totaled $434 million, an increase of $51 million from the prior quarter. Executives said the reserve increased because of the high level of repurchase demands received during the quarter and the timing of demand resolution.
“We’re improving our dialogue with the agencies all the time," Rogers said on the call. "And as we continue to improve communication and gain confidence in what we expect to see, we’re starting to feel a lot better about these numbers.”
Click on the chart below for a multi-year breakout of mortgage repurchase demands at Suntrust.