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Mortgage Performance Improves at SunTrust

Home-loan production picked up at SunTrust Banks Inc. as a bigger share of activity was funded through third-party channels. But new applications suggest a decline in the current quarter’s activity. Mortgage production income improved and residential delinquency declined, but servicing income turned lower.

The Atlanta-based company reported in its second-quarter earnings data that it generated $8.250 billion in residential production.

Business improved from $7.673 billion originated during the first quarter and $4.691 billion in the second-quarter 2011.

The increase in production was the result of low interest rates and the Home Affordable Refinance Program.

The retail channel generated 53 percent of the volume closed during the latest three-month period, while wholesale share was 16 percent and the correspondent portion was 31 percent. The mix has shifted to third-party channels since the second quarter of last year, when wholesale share was just 12 percent and correspondent share was 18 percent.

Second-quarter refinance share was 63 percent, down from 76 percent in the previous quarter.

It looks like third-quarter business might turn lower based on new applications, which fell to $14.6 billion in the second quarter from $16.7 billion in the first quarter.

At $153.442 billion, the total servicing portfolio was down from $155.351 billion as of March 31 and $162.915 billion as of June 30, 2011. Last month’s total included $118.887 mortgages serviced for investors, contracting from $121.444 billion as of the end of the first quarter.

The investment portfolio included $46.202 billion in residential loans, slightly less than $46.476 billion as of the end of March and up from $45.024 billion a year prior. The second-quarter 2012 total included $5.663 billion in guaranteed mortgages, $24.405 billion in non-guaranteed mortgages, $15.281 billion in home-equity loans and $0.853 billion in construction loans.

Residential delinquency of between 30 and 89 days, excluding federally guaranteed loans, fell to 1.02 percent from 1.24 percent. The rate was 1.47 percent in the second-quarter 2011.

Commercial mortgage holdings were trimmed to $5.784 billion from $5.996 billion at the end of March and $7.447 billion at the same point in 2011. The June 30, 2012, number included $4.825 billion in commercial real estate loans and $0.959 billion in commercial construction assets.

CRE delinquency fell 10 basis points from the first quarter to 0.17 percent and was down from 0.26 percent a year prior. Commercial construction delinquency was 0.15 percent, dropping from 0.24 percent the prior quarter and 0.63 percent in the same quarter in the prior year.

Mortgage production income climbed to $103 million from $63 million in the first quarter thanks to $18 million in net gains from the sale of government guaranteed mortgages and a decline in the mortgage repurchase provision. Mortgage earnings were $4 million a year earlier.

SunTrust added $155 million to its repurchase reserve, less than the $175 million added in the first quarter, while repurchase charge offs eased to $104 million from $113 million. The ending balance of the repurchase reserve was $434 million, growing from $383 million three months earlier.

Outstanding repurchase demands ended June at $652 million, swelling from $564 million at the end of the first quarter. The increase reflected $489 million in new demands in the second quarter versus $448 million in first-quarter demands.

Servicing income fell to $70 million from the first quarter’s $81 million and the year-earlier period’s $72 million. SunTrust blamed less favorable hedge performance for the sequential-quarterly decline.

Income before taxes at the parent company level improved to $368 million from the prior quarter’s $329 million and was much better than $237 million in the same quarter during the prior year.

As of June 30, staffing stood at 28,324 full-time equivalent employees. Headcount was down from 28,615 three months earlier and 29,235 a year earlier.

SunTrust operated 1,641 full-service banking offices, 10 fewer than at the end of the first quarter.

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