SunTrust Banks, Inc.
) recently announced a settlement with Freddie Mac worth $65
million. The settlement includes the resolution of all
outstanding and potential repurchase claims relating to
misrepresentation of loans originated and sold by SunTrust
directly to Freddie Mac, from 2000 to 2008.
As per the agreement, SunTrust is no longer obligated to
repurchase approximately 312,000 shares that were funded by
Freddie Mac. Further, the deal relieves SunTrust from further
hassles as Freddie Mac will be reimbursed for existing and future
losses related to denials, rescissions and cancellations of
Out of the total settlement claim, SunTrust will have to pay $40
million in cash as it has already repurchased loans worth $25
million. Though this legal expense is more or less covered by
SunTrust's existing reserves for mortgage repurchases, it is
expected to increase the company's mortgage provision expense by
$15 million in third-quarter 2013.
The recent settlement reflects SunTrust's efforts to resolve
mortgage-related legal issues. Keeping aside the one-time
compensation expense, the settlement will reduce the company's
legal headwinds in the coming quarters.
In the recent past, Wall Street biggies,
Wells Fargo & Company
Bank of America Corporation
) resolved similar legal issues related to faulty mortgages sold
to Fannie Mae and Freddie Mac.
Earlier this week, Wells Fargo announced a lawsuit settlement
with Freddie Mac worth about $869 million. Similarly, last week,
Citigroup announced a settlement with Freddie Mac worth about
$395 million. In January this year, BofA announced an agreement
with Fannie Mae worth about $10.3 billion.
SunTrust currently carries a Zacks Rank #3 (Hold).
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