The agreement releases First Horizon from responsibility for loans that were sold to a new servicer and then had mortgage insurance cancelled or denied, “to the extent attributable to the acts of the current servicer,” according to a filing with the Securities and Exchange Commission on Thursday.
The $23.6-billion-asset First Horizon remains responsible for repurchase obligations on certain defective mortgages under the agreement. It also continues to have obligations related to mortgage insurance rescissions, cancellations and denials.
First Horizon sold its mortgage business to MetLife in 2008 and has since been working to unwind the division. The agreement is “a big step forward,” First Horizon Chief Executive Bryan Jordan said in a press release Thursday.
The agreement had what First Horizon described as an "insignificant" impact on earnings for 2013; its consolidated net income available to shareholders last year was $23.8 million, or 10 cents per share, compared with the $23.5 million and same per-share earnings reported in January, according to an 8-K filing Thursday. The agreement reduced First Horizon’s mortgage repurchase reserve and increased its pending litigation reserve for the fourth quarter and full year, according to the 8-K.
First Horizon reached a related agreement with Fannie Mae in the fourth quarter, according to the release.
First Horizon is currently the subject of a government probe into how it originates mortgages insured by the Federal Housing Administration. The Justice Department and the Department of Housing and Urban Development are searching for potential violations of the False Claims Act, which prohibits companies from providing false information to the government.