SunTrust 2011 Annual Report Download - page 30
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of borrower fraud or in the event of early payment default of the borrower on a mortgage loan. Likewise, we are required to
repurchase or substitute mortgage loans if we breach a representation or warranty in connection with our securitizations, whether
or not we were the originator of the loan. While in many cases we may have a remedy available against the originating broker or
correspondent, often these may not be as broad as the remedies available to a purchaser of mortgage loans against us, and we face
the further risk that the originating broker or correspondent may not have the financial capacity to satisfy remedies that may be
available to us. Therefore, if a purchaser enforces its remedies against us, we may not be able to recover our losses from the
originating broker or correspondent. We have received a number of repurchase and indemnity demands from purchasers. These
have resulted in an increase in the amount of losses for repurchases. While we have taken steps to enhance our underwriting
policies and procedures, these steps will not reduce risk associated with loans sold in the past. If repurchase and indemnity demands
increase materially, our results of operations may be adversely affected.
During the third and fourth quarters of 2011, repurchase requests increased substantially. However, repurchase requests historically
have been highly volatile, and it is too early to tell if this is the beginning of a trend. In the fourth quarter of 2011, we increased
this reserve and, if repurchase requests increase, we may need to increase it further and this would adversely affect net income
available to common shareholders. During the years ended December 31, 2011, 2010, and 2009 we received $1.7 billion, $1.1
billion, and $1.1 billion of repurchase requests, respectively. Further, during the years ended December 31, 2011 and 2010, we
repurchased or otherwise settled mortgages with unpaid principal balances of $789 million and $677 million, respectively, related
to investor demands, which included an insignificant amount of indemnifications in both years. For additional information, see
Note 18, “Reinsurance Arrangements and Guarantees,” to the Consolidated Financial Statements in this Form 10-K, and the
following sections of MD&A in this Form 10-K - "Noninterest Income”, "Other Nonperforming Assets”, and "Critical Accounting
Policies". In addition, investors have begun to demonstrate reduced flexibility and reduced willingness to resolve pending
repurchase requests and, if this continues, our repurchase rates may increase and this would cause us to increase our repurchase
reserve.
Finally, we have received indemnification requests related to our servicing of loans owned or insured by other parties, primarily
GSEs. Typically, such a claim seeks to impose a compensatory fee on us for departures from GSE service levels. In most cases,
this is related to delays in the foreclosure process. Additionally, we have received indemnification requests where an investor or
insurer has suffered a loss due to a breach of the servicing agreement. While the number of such claims has been small, these
could increase in the future. See additional discussion in Note 18, “Reinsurance Arrangements and Guarantees,” to the Consolidated
Financial Statements in this Form 10-K.
Financial difficulties or credit downgrades of mortgage and bond insurers may adversely affect our servicing and investment
portfolios.
Our servicing portfolio includes certain mortgage loans that carry some level of insurance from one or more mortgage insurance
companies. To the extent that any of these companies experience financial difficulties or credit downgrades, we may be required,
as servicer of the insured loan on behalf of the investor, to obtain replacement coverage with another provider, possibly at a higher
cost than the coverage we would replace. We may be responsible for some or all of the incremental cost of the new coverage for
certain loans depending on the terms of our servicing agreement with the investor and other circumstances. Similarly, some of the
mortgage loans we hold for investment or for sale carry mortgage insurance. If a mortgage insurer is unable to meet its credit
obligations with respect to an insured loan, we might incur higher credit losses if replacement coverage is not obtained. We also
have investments in municipal bonds that are guaranteed against loss by bond insurers. The value of these bonds and the payment
of principal and interest on them may be adversely affected by financial difficulties or credit downgrades experienced by the bond
insurers.
We may be terminated as a servicer or master servicer, be required to repurchase a mortgage loan or reimburse investors
for credit losses on a mortgage loan, or incur costs, liabilities, fines and other sanctions if we fail to satisfy our servicing
obligations, including our obligations with respect to mortgage loan foreclosure actions.
We act as servicer and/or master servicer for mortgage loans included in securitizations and for unsecuritized mortgage loans
owned by investors. As a servicer or master servicer for those loans we have certain contractual obligations to the securitization
trusts, investors or other third parties, including, in our capacity as a servicer, foreclosing on defaulted mortgage loans or, to the
extent consistent with the applicable securitization or other investor agreement, considering alternatives to foreclosure such as
loan modifications or short sales and, in our capacity as a master servicer, overseeing the servicing of mortgage loans by the
servicer. If we commit a material breach of our obligations as servicer or master servicer, we may be subject to termination if the
breach is not cured within a specified period of time following notice, which can generally be given by the securitization trustee
or a specified percentage of security holders, causing us to lose servicing income. In addition, we may be required to indemnify
the securitization trustee against losses from any failure by us, as a servicer or master servicer, to perform our servicing obligations
or any act or omission on our part that involves willful misfeasance, bad faith or gross negligence. For certain investors and/or
certain transactions, we may be contractually obligated to repurchase a mortgage loan or reimburse the investor for credit losses
incurred on the loan as a remedy for servicing errors with respect to the loan. If we have increased repurchase obligations because