SunTrust Banks is planning to sell $2.1 billion in government-guaranteed, performing residential mortgages this quarter, after selling $325 million last quarter, to meet proposed Basel III regulatory liquidity coverage ratios.
"We currently plan to reinvest the proceeds of the government guaranteed loan sales into high-quality liquid securities," SunTrust chief financial officer Aleem Gillani said Monday on a conference call to discuss second-quarter results.
The Atlanta-based regional bank also sold $149 million in accruing but restructured residential mortgages in the second quarter to reduce its legacy mortgage assets and enhance asset quality.
The bank declined to disclose the mix of loans (Fannie Mae, Freddie Mac, Federal Housing Administration or Department of Veterans Affairs) it sold in the second quarter.
SunTrust Mortgage recently entered into a $418 million settlement with the Departments of Justice and Housing and Urban Development over the bank's origination practices involving FHA-insured loans.
JPMorgan Chase entered into a similar $600 million settlement and now it is considering whether it should stop originating FHA loans. But it appears SunTrust is having no such second thoughts about the FHA market.
"We are very interested in meeting all the lending needs of our clients," a SunTrust spokesman said, and the bank continues to originate FHA loans.
The bank's mortgage subsidiary originated $4.1 billion in single-family loans in the second quarter, up from $3.1 billion in the prior quarter. Gain on sale margins declined slightly.
"Total loan closed volume increased 31% sequentially driven by increased purchase originations associated with the spring and summer selling season," according to SunTrust Banks chairman and chief executive William Rogers.
"The mortgage market continues to improve albeit at a slower rate than we and the industry initially expected," he said Monday during the conference call.
Affordability, in terms of house prices and interest rates, continues to be supportive of the housing market, he said. However, "inventory levels, building activity and the amount of first-time home buying continue to dampen broader mortgage origination volumes."
In response to a question, Rogers noted that the housing market in Florida is one of the best in SunTrust's markets.
"Universally, we feel better about what is going on in the Florida market. Housing is certainly stronger virtually across every market. In some markets it is very, very good."