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SunTrust Mortgage Settlements to Reduce Profit by $179 Million

OCT 11, 2013 9:09am ET
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SunTrust Banks Inc., Georgia’s biggest lender, said third quarter earnings will be cut by $179 million, or 33 cents a share, after it reached settlements with U.S. officials over claims tied to faulty mortgages.

SunTrust will offer $500 million in consumer assistance and make a cash payment of $468 million as a result of an agreement with the Department of Justice and the Department of Housing and Urban Development, the Atlanta-based bank said yesterday in a statement. Those agreements primarily will result in a $323 million charge in the third quarter, the company said.

The Federal Reserve also issued $160 million in sanctions against the company for “unsafe and unsound processes and practices in residential mortgage loans servicing and foreclosure processing,” the central bank said yesterday in a statement. SunTrust expects to satisfy that penalty through the $500 million in consumer relief, according to a filing.

“SunTrust is pleased to have resolved a number of legacy mortgage matters,” Chief Executive Officer William H. Rogers said in the company’s statement. “These settlements reduce uncertainty, further improve our risk profile, and enhance our ability to focus on future growth.”

SunTrust fell 1.3% to $32.90 in extended trading after the settlements were disclosed. The shares had climbed 18% this year through the close of regular trading yesterday.

The bank also reached an agreement with Fannie Mae, the government-controlled mortgage buyer, to release SunTrust from certain repurchase obligations for about 1.1 million loans funded by the U.S.-backed firm from 2000 to 2012. The $373 million settlement will be adjusted for $145 million in credits related to other repurchases, SunTrust said in the filing.

The agreement “is another sign of progress in addressing outstanding issues so that the housing market can continue to strengthen,” Bradley Lerman, Fannie Mae’s executive vice president and general counsel, said in a statement.

SunTrust agreed to sell mortgage servicing rights on about $1 billion of unpaid balance of primarily delinquent home loans, according to the statement. The sale will contribute to a $96 million third quarter charge, the bank said.

Profit for the three months ended Sept. 30 was expected to decline 66% to 68 cents a share from a year earlier, according to the average estimate of 30 analysts surveyed by Bloomberg before the settlements were made public. The bank is scheduled to report results Oct. 18.

The agreement with the Justice Department and HUD covers mortgage loans originated from Jan. 1, 2006, to March 31, 2012, according to the filing.

SunTrust said earlier this month it reached a $65 million settlement with Freddie Mac covering refunds for faulty mortgages. That deal included a one-time cash payment of $40 million to the government-sponsored enterprise and $25 million in credits for prior repurchases, the bank said Oct. 1.

Because of the Freddie Mac and Fannie Mae settlements, the bank added $63 million to its mortgage repurchase provision in the quarter.

SunTrust previously disclosed that it would recognize a tax benefit in the third quarter after a reorganization of subsidiaries. That will result in a $113 million gain, according to yesterday’s statement.

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