SunTrust Posts 3Q Mortgage Loss, Re: Buyback Reserve

SunTrust Banks reported a $64 million loss on it mortgage banking business in the third quarter due to provisioning tied to Fannie Mae and Freddie Mac loan buybacks.

The $371 million increase in mortgage repurchase reserves “fully covers estimated remaining losses on pre-2009 vintage GSE loans,” SunTrust chairman and chief executive William Rodgers said Monday, discussing the bank’s third-quarter results.  

Those vintages have “generated” the most losses, the CEO added. As of Sept. 30, SunTrust had $694 million in repurchase reserves compared to pending repurchase demands of $690 million.

Excluding the impact of the repurchase reverse buildup, mortgage production income would have hit a record high of $152 million in the third quarter, compared to $103 million in the prior quarter. 

The Atlanta-based bank reported $8.2 billion in originations, relatively unchanged from the second quarter, but up 40% from a year ago.

Refinancings comprised 70% of loan production with HARP mortgages accounting for 30% of all refis.

SunTrust executives noted that they are selling $500 million of Ginnie Mae loans that are more than 90 days delinquent and taking a large writedown. 

The bank also took a $65 million charge-off on second liens that are more than 120 days past due.  The hit was based on its own performance evaluation and not on the Office of the Comptroller of the Currency’s recent directive on the treatment of second liens where borrowers have completed Chapter 7 bankruptcy. SunTrust is not subject to OCC supervision, but bank executives expect other regulators will take similar action.

Sales of Cola-Cola stock by the bank in 3Q produced a one-time gain of $1.9 billion, which covered the cost of provisioning and charge-offs. SunTrust reported net income of $1.1 billion for the quarter.