SunTrust 2013 Annual Report Download - page 32

16
relating to delays or deficiencies in our processing of mortgage assignments or other documents necessary to comply with
state law governing foreclosures. The fair value of our MSRs may be adversely affected to the extent our servicing costs
increase because of higher foreclosure costs. Further, we may be subject to fines and other sanctions, including a foreclosure
moratorium or suspension or a requirement to forgive or modify the loan obligations of certain of our borrowers, imposed by
Federal or state regulators as a result of actual or perceived deficiencies in our foreclosure practices or in the foreclosure
practices of other mortgage loan servicers. Any of these actions may harm our reputation or adversely affect our residential
mortgage origination or servicing business.
As a servicer, we advance expenses on behalf of investors which we may be unable to collect. In 2013, we completed an
expanded review of our servicing advance practices. Separately, we entered into an agreement to sell MSRs on approximately
$1 billion of UPB of predominantly delinquent mortgage loans. As a result of the review and the MSR sale, we refined our
loss estimates and valuation methodologies for servicing advances, resulting in a $96 million charge to our earnings during
2013.
In 2011, the FRB conducted a horizontal review of the nation's largest mortgage loan servicers, including us. Following this
review, we and other servicers entered into a Consent Order with the FRB. We describe the Consent Order in Note 19,
“Contingencies,” to the Consolidated Financial Statements in this Form 10-K. The Consent Order required us to improve
certain mortgage servicing and foreclosure processes and to retain an independent foreclosure consultant to conduct a review
of residential foreclosure actions pending during 2009 and 2010 to identify any errors, misrepresentations or deficiencies,
determine whether any instances so identified resulted in financial injury, and prepare a written report detailing the findings.
On January 7, 2013, we, along with nine other mortgage servicers, entered into an amendment to the Consent Order with the
OCC and the FRB to amend the 2011 Consent Order. This agreement ended the independent foreclosure review process created
by the Consent Order, replacing it with an accelerated remediation program. We have taken actions to satisfy our commitments
under the amendment to the Consent Order, and our financial results at December 31, 2013 reflect the expected costs of
satisfying our financial obligations under the amendment to the Consent Order.
As a result of the FRB's review of our residential mortgage loan servicing and foreclosure processing practices that preceded
the Consent Order, the FRB announced that it would impose a $160 million civil money penalty. As permitted in the agreement
with the FRB, we expect to satisfy the civil money penalty by providing consumer relief and certain cash payments as
contemplated by such agreement. We also continue with settlement discussions with the U.S. and States Attorneys General
related to mortgage servicing claims as discussed in Note 19, "Contingencies" to the Consolidated Financial Statements in
this Form 10-K. We have accrued for the anticipated cost of resolving these and other potential claims in our financial results.
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 are subject to risks related to delays in the foreclosure process.
When we originate a mortgage loan, we do so with the expectation that if the borrower defaults, our ultimate loss is mitigated
by the value of the collateral which secures the mortgage loan. Our ability to mitigate our losses on such defaulted loans
depends upon our ability to promptly foreclose upon such collateral after an appropriate cure period. In some states, the large
number of foreclosures which have occurred has resulted in delays in foreclosing. In some instances, our practices or failures
to adhere to our policies have contributed to these delays. Any delay in the foreclosure process will adversely affect us by
increasing our expenses related to carrying such assets, such as taxes, insurance, and other carrying costs, and exposes us to
losses as a result of potential additional declines in the value of such collateral.
We face risks related to recent mortgage settlements.
On October 10, 2013, we announced that we reached agreements in principle with the HUD and the U.S. DOJ (collectively,
the “Government”) to settle (i) certain civil and administrative claims arising from FHA-insured mortgage loans originated
by STM from January 1, 2006 through March 31, 2012 and (ii) certain alleged civil claims regarding our mortgage servicing
and origination practices as part of the National Mortgage Servicing Settlement. Pursuant to the combined agreements in