SunTrust 2014 Annual Report Download - page 150

Notes to Consolidated Financial Statements, continued
127
will be incurred and the amount of such loss can be reasonably
estimated, the Company records those reserves in other liabilities
in the Consolidated Balance Sheets. See Note 19,
"Contingencies," for additional information on current legal
matters related to representations and warranties.
Loans sold to Ginnie Mae are insured by either the FHA or
VA. As servicer, the Company may elect to repurchase delinquent
loans in accordance with Ginnie Mae guidelines; however, the
loans continue to be insured. The Company indemnifies the FHA
and VA for losses related to loans not originated in accordance
with their guidelines. See Note 19, "Contingencies," for
additional information on current legal matters related to
representations and warranties made in connection with loan
sales and the final settlement of HUD's investigation of the
Company's origination practices for FHA loans.
During the third quarter of 2013, the Company reached
agreements in principle with Freddie Mac and Fannie Mae
relieving the Company of certain existing and future repurchase
obligations related to 2000-2008 vintages for Freddie Mac and
2000-2012 vintages for Fannie Mae. Repurchase requests have
declined significantly in 2014 as a result of the settlements.
Repurchase requests from GSEs, Ginnie Mae, and non-agency
investors, for all vintages, are illustrated in the following table
that summarizes demand activity for the years ended December
31:
(Dollars in millions) 2014 2013 2012
Beginning pending repurchase
requests $126 $655 $590
Repurchase requests received 158 1,511 1,726
Repurchase requests resolved:
Repurchased (28) (1,134) (769)
Cured (209) (906) (892)
Total resolved (237) (2,040) (1,661)
Ending pending repurchase
requests1$47 $126 $655
Percent from non-agency investors:
Pending repurchase requests 6.7% 2.8% 2.5%
Repurchase requests received 0.9 1.2 1.2
1 Comprised of $44 million, $122 million, and $639 million from the GSEs, and
$3 million, $4 million, and $16 million from non-agency investors at
December 31, 2014, 2013, and 2012, respectively.
The majority of these requests were from the GSEs, with a
limited number of requests from non-agency investors. The
repurchase and make whole requests received have been
primarily due to alleged material breaches of representations
related to compliance with the applicable underwriting
standards, including borrower misrepresentation and appraisal
issues. STM performs a loan-by-loan review of all requests and
contests demands to the extent they are not considered valid.
The following table summarizes the changes in the
Company’s reserve for mortgage loan repurchases:
Year Ended December 31
(Dollars in millions) 2014 2013 2012
Balance at beginning of period $78 $632 $320
Repurchase provision 12 114 713
Charge-offs, net of recoveries (5) (668) (401)
Balance at end of period $85 $78 $632
A significant degree of judgment is used to estimate the
mortgage repurchase liability as the estimation process is
inherently uncertain and subject to imprecision. The Company
believes that its reserve appropriately estimates incurred losses
based on its current analysis and assumptions, inclusive of the
Freddie Mac and Fannie Mae settlement agreements, GSE
owned loans serviced by third party servicers, loans sold to
private investors, and future indemnifications. However, the
2013 agreements with Freddie Mac and Fannie Mae settling
certain aspects of the Company's repurchase obligations preserve
their right to require repurchases arising from certain types of
events, and that preservation of rights can impact future losses
of the Company. While the repurchase reserve includes the
estimated cost of settling claims related to required repurchases,
the Company's estimate of losses depends on its assumptions
regarding GSE and other counterparty behavior, loan
performance, home prices, and other factors. The liability is
recorded in other liabilities in the Consolidated Balance Sheets,
and the related repurchase provision is recognized as a contra-
revenue item in mortgage production related income in the
Consolidated Statements of Income.
At December 31, 2014, the carrying value of outstanding
repurchased mortgage loans, net of any allowance for loan losses,
was $312 million, comprised of $300 million LHFI and $12
million LHFS, respectively, of which $29 million LHFI and $12
million LHFS, were nonperforming. At December 31, 2013, the
carrying value of outstanding repurchased mortgage loans, net
of any allowance for loan losses, was $339 million, comprised
of $325 million LHFI and $14 million LHFS, respectively, of
which $54 million LHFI and $14 million LHFS, were
nonperforming.
In addition to representations and warranties related to loan
sales, the Company makes representations and warranties that it
will service the loans in accordance with investor servicing
guidelines and standards, which may include (i) collection and
remittance of principal and interest, (ii) administration of escrow
for taxes and insurance, (iii) advancing principal, interest, taxes,
insurance, and collection expenses on delinquent accounts, (iv)
loss mitigation strategies including loan modifications, and (v)
foreclosures.
The Company normally retains servicing rights when loans
are transferred; however, servicing rights are occasionally sold
to third parties. When MSRs are sold, the Company makes
representations and warranties related to servicing standards and
obligations and recognizes a liability for contingent losses,
separate from the reserve for mortgage loan repurchases, which
totaled $25 million and $21 million at December 31, 2014 and
2013, respectively.