SunTrust 2011 Annual Report Download - page 83
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The previous table presented historical information regarding the population of defaulted loans and repurchase request rates. The
following table presents historical information regarding the repurchase rates and loss severity for loans sold between 2006 to
2008.
Repurchase Rates and Loss Severity
(Dollars in billions)
Repurchased
Cured
Pending
Total repurchase requests received
Repurchase rate
Losses recognized
Loss severity
Loss severity last 12 months
2006
$0.8
0.7
0.1
$1.6
53%
$0.3
42%
56%
2007
$1.2
0.8
0.3
$2.3
61%
$0.6
51%
57%
2008
$0.2
0.2
0.1
$0.5
60%
$0.1
48%
48%
Table 28
Total
$2.2
1.7
0.5
$4.4
58%
$1.0
47%
55%
Some of the assumptions used in the reserve process contain a level of uncertainty since they are largely derived from historical
experience that has been limited and highly variable. As such, provision expense will vary as the estimates used to measure the
liability continue to be updated based on the level of repurchase requests, the latest experience gained on repurchase requests, and
other relevant facts and circumstances. One of the most critical and judgmental assumptions is the repurchase request rate because
it requires us to make assessments regarding the actions that will be taken by third party investors in the context of the highly
variable history we have experienced with their current volume and timing of requests.
Once we estimate the level of requests that we expect to receive by vintage, we apply factors for the probability that a loan will
be repurchased as well as the loss severity expected. Our life-to-date repurchase rates are consistent with future expectations;
however, given changes in housing prices over the past several years, we believe the loss severity over the past 12 months will be
more indicative of our future loss severity rate.
Our current estimated liability for contingent losses related to loans sold was $320 million as of December 31, 2011. The liability
is recorded in other liabilities in the Consolidated Balance Sheets, and the related repurchase provision is recognized in mortgage
production related (loss)/income in the Consolidated Statements of Income/(Loss). Various factors could potentially impact the
accuracy of the assumptions underlying our mortgage repurchase reserve estimate. As previously discussed, the level of repurchase
requests we receive is dependent upon the actions of third parties and could differ from the assumptions that we have made.
Delinquency levels, delinquency roll rates, and our loss severity assumptions are all highly dependent upon economic factors
including changes in real estate values and unemployment levels which are, by nature, difficult to predict. Loss severity assumptions
could also be negatively impacted by delays in the foreclosure process which is a heightened risk in some of the states where our
loans sold were originated. Approximately 16% of the population of total loans sold between January 1, 2006 and December 31,
2008 were sold to non-agency investors, some in the form of securitizations. Due to the nature of these structures and the indirect
ownership interests, the potential exists that investors, over time, will become more successful in forcing additional repurchase
demands. While we have used the best information available in estimating the mortgage repurchase reserve liability, these and
other factors, along with the discovery of additional information in the future could result in changes in our assumptions which
could materially impact our results of operations.
See "Noninterest Income" in this MD&A and Note 18, “Reinsurance Arrangements and Guarantees - Loan Sales,” to the
Consolidated Financial Statements in this Form 10-K for further discussion.
Legal and Regulatory Matters
We are parties to numerous claims and lawsuits arising in the course of our normal business activities, some of which involve
claims for substantial amounts, and the outcomes of which are not within our complete control or may not be known for prolonged
periods of time. Management is required to assess the probability of loss and amount of such loss, if any, in preparing our financial
statements.