A third financial institution has come to an agreement with Freddie Mac to resolve claims that it issued problematic loans to the government-sponsored enterprise between 2000 and 2008.
SunTrust Banks will pay Freddie Mac a total of $65 million in order to be released from certain existing and future repurchase obligations for approximately 312,000 single-family loans funded by the GSE during the eight-year period.
The agreement compensates Freddie Mac for certain outstanding and potential future losses relating to denials, rescissions and cancellations of mortgage insurance.
According to SunTrust, the $65 million settlement was adjusted for $25 million of credits related to certain prior repurchases, therefore resulting in a one-time cash payment to Freddie Mac of $40 million.
While the majority of the settlement is covered by SunTrust’s existing reserves for mortgage repurchases, the bank expects to incur an approximate $15 million incremental mortgage provision expense in the third quarter of 2013 related to this agreement.
“We are pleased to enter into this agreement with Freddie Mac as it marks another step in our resolution of legacy mortgage-related matters,” said Jerome Lienhard, CEO of SunTrust Mortgage in a written statement. “We continue to remain focused on providing high quality products and services to our mortgage clients.”
This represents the third settlement over the past week that Freddie Mac has made with financial institutions related to representations and warranties on single-family loans sold to Freddie Mac. Besides SunTrust, Wells Fargo will pay the GSE $869 million, while CitiMortgage agreed to pay $395 million.
All of the agreements were approved by the Federal Housing Finance Agency, which is the conservator for Freddie Mac.
“With these settlements, Freddie Mac is recouping funds effectively due to the nation’s taxpayers,” said Donald Lyons, CEO of Freddie Mac. “We believe these settlements are equitable, and we are pleased to have resolved legacy repurchase issues with three of our valued customers.”