SunTrust 2011 Annual Report Download - page 29
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linked to the U.S. government could also be correspondingly affected by any such downgrade. Instruments of this nature are key
assets on the balance sheets of financial institutions, including us, and are widely used as collateral by financial institutions to
meet their day-to-day cash flows in the short-term debt market.
A downgrade of the sovereign credit ratings of the U.S. government and perceived creditworthiness of U.S. government-related
obligations could impact our ability to obtain funding that is collateralized by affected instruments, as well as affecting the pricing
of that funding when it is available. A downgrade may also adversely affect the market value of such instruments. We cannot
predict if, when or how any changes to the credit ratings or perceived creditworthiness of these organizations will affect economic
conditions. Such ratings actions could result in a significant adverse impact on us. In addition, we presently deliver a material
portion of the residential mortgage loans we originate into government-sponsored institutions, agencies or instrumentalities (or
instruments insured or guaranteed thereby). We cannot predict if, when or how any changes to the credit ratings of these organizations
will affect their ability to finance residential mortgage loans. Such ratings actions, if any, could result in a significant change to
our mortgage business. A downgrade of the sovereign credit ratings of the U.S. government or the credit ratings of related institutions,
agencies or instrumentalities would significantly exacerbate the other risks to which we are subject and any related adverse effects
on our business, financial condition and results of operations.
The failure of the European Union to stabilize the fiscal condition and creditworthiness of its weaker member economies,
such as Greece, Portugal, Spain, Hungary, Ireland, and Italy, could have international implications potentially impacting
global financial institutions, the financial markets, and the economic recovery underway in the U.S.
Certain European Union member countries have fiscal obligations greater than their fiscal revenue, which has caused investor
concern over such countries ability to continue to service their debt and foster economic growth. Currently, the European debt
crisis has caused credit spreads to widen in the fixed income debt markets, and liquidity to be less abundant. A weaker European
economy may transcend Europe, cause investors to lose confidence in the safety and soundness of European financial institutions
and the stability of European member economies, and likewise affect U.S.-based financial institutions, the stability of the global
financial markets and the economic recovery underway in the U.S.
Should the U.S. economic recovery be adversely impacted by these factors, loan and asset growth at U.S. financial institutions,
like us, could be affected. We have taken steps since the 2008-2009 financial crisis to strengthen our liquidity position. Nevertheless,
a return of the volatile economic conditions experienced in the U.S. during 2008-2009, including the adverse conditions in the
fixed income debt markets, for an extended period of time, particularly if left unmitigated by policy measures, may materially and
adversely affect us.
Weakness in the real estate market, including the secondary residential mortgage loan markets, has adversely affected us
and may continue to adversely affect us.
Weakness in the non-agency secondary market for residential mortgage loans has limited the market for and liquidity of many
mortgage loans. The effects of ongoing mortgage market challenges, combined with the ongoing correction in residential real
estate market prices and reduced levels of home sales, could result in further price reductions in single family home values,
adversely affecting the value of collateral securing mortgage loans that we hold, and mortgage loan originations and profits on
sales of mortgage loans. Declining real estate prices have caused cyclically higher delinquencies and losses on mortgage loans,
particularly Alt-A mortgages, home equity lines of credit, and mortgage loans sourced from brokers that are outside our branch
banking network. These conditions have resulted in losses, write downs and impairment charges in our mortgage and other lines
of business. Continued declines in real estate values, low home sales volumes, financial stress on borrowers as a result of
unemployment, interest rate resets on ARMs or other factors could have further adverse effects on borrowers that could result in
higher delinquencies and greater charge-offs in future periods, which would adversely affect our financial condition or results of
operations. Additionally, counterparties to insurance arrangements used to mitigate risk associated with increased defaults in the
real estate market are stressed by weaknesses in the real estate market and a commensurate increase in the number of claims.
Further, decreases in real estate values might adversely affect the creditworthiness of state and local governments, and this might
result in decreased profitability or credit losses from loans made to such governments. A decline in home values or overall economic
weakness could also have an adverse impact upon the value of real estate or other assets which we own as a result of foreclosing
a loan and our ability to realize value on such assets.
We are subject to certain risks related to originating and selling mortgages. We may be required to repurchase mortgage
loans or indemnify mortgage loan purchasers as a result of breaches of representations and warranties, borrower fraud,
or certain breaches of our servicing agreements, and this could harm our liquidity, results of operations, and financial
condition.
We originate and often sell mortgage loans. When we sell mortgage loans, whether as whole loans or pursuant to a securitization,
we are required to make customary representations and warranties to the purchaser about the mortgage loans and the manner in
which they were originated. Our whole loan sale agreements require us to repurchase or substitute mortgage loans in the event
that we breach any of these representations or warranties. In addition, we may be required to repurchase mortgage loans as a result