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TH E M R EP O RT | 51 O R I G I NAT I O N S E R V I C I N G A NA LY T I C S S E C O N DA R Y M A R K E T SERVICING THE LATEST SunTrust's Income Skyrockets Buoyed by "efficiency and credit quality," the bank posted a 40 percent hop in mortgage servicing dollars. S unTrust Bank experienced a 40 percent spike in mortgage servicing income in the midst of what Chairman and CEO William H. Rogers, Jr., deemed a "solid perfor - mance" for both the fourth quarter and full year 2015, according to the bank's earnings statement. The Atlanta-based bank re - ported a net income of $484 mil- lion as of the end of Q 4 ($0.91 per average common diluted share), an increase of 23 percent from the year-ago quarter. For the full year 2015, SunTrust reported a net income of $1.93 billion ($3.58 per average common diluted share), which was 11 percent higher than 2014's net income of $1.77 billion. The year-over-year spike in income was driven primarily by improved efficiency and credit quality, according to SunTrust. The bank's income for 2014 was nega - tively impacted by legal matters; in June 2014, SunTrust reached a settlement for nearly $1 billion with federal regulators and 49 states plus the District of Columbia for "systemic mortgage servicing misconduct," including failing to promptly and accurately apply borrower payments, robo-signing, and other illegal foreclosure prac - tices. Largely free from those legal costs, SunTrust reported increased earnings for both the fourth quar- ter and the full year 2015. "Our solid performance in the fourth quarter and strong 11 percent earnings growth for the year are the result of consistent execution of our strategies and the diversity of our business model," said William H. Rogers, Jr., chairman and CEO of SunTrust Banks, Inc. "Looking ahead, we will further advance our purpose of improving the financial well- being of our clients and com- munities, thus driving long-term value for our shareholders." One area in particular that experienced healthy growth at SunTrust was mortgage servic- ing income, which increased by 40 percent year-over-year and 6 percent quarter-over-quarter up to $56 million. SunTrust attributes the large over-the-quarter increase to higher servicing fees, improved net hedge performance, and a decline in the servicing asset decay expense. The over-the-year increase was largely driven by higher servicing fees as a result of a larger servicing portfolio, ac- cording to SunTrust. At the end of 2015, the value of SunTrust's mortgage servicing portfolio was reported at $148 billion, an increase of $6 billion from the previous year, driven by portfolio acquisitions. Meanwhile, mortgage pro- duction-related income for Q 4 declined to $53 million from $58 million in Q 3 and $61 million in Q 4 2014. A modest decline in gain-on-sale margins drove the $8 million year-over-year decline, while a decline in production drove the $5 million over-the- quarter decline. A typical seasonal decline in new purchase activity resulted in a 20 percent over- the-quarter decline in mortgage production volume in Q 4. • By July, HSBC will complete $370 million in creditable consumer relief directly to borrowers and homeowners in the form of reducing the principal on mortgages for borrowers who are at risk of default, reducing mortgage interest rates, forgiving forbear- ance, and other forms of relief. The relief to homeowners has been underway and will likely provide more than $370 mil- lion in direct benefits to bor- rowers because HSBC will not be permitted to claim credit for every dollar spent on the required consumer relief. • HSBC will be required to implement standards for the servicing of mortgage loans and handling of foreclosures and for ensuring the accu- racy of information provided in federal bankruptcy court. These standards are designed to prevent foreclosure abuses of the past—such as robo- signing, improper documenta- tion, and lost paperwork—and create new consumer protec- tions. The standards provide for oversight of foreclosure processing, including third- party vendors, and new requirements to undertake pre-filing reviews of certain documents filed in bankruptcy court. The servicing standards ensure that foreclosure is a last resort by requiring HSBC to evaluate homeowners for other loss-mitigation options first. In addition, the standards restrict HSBC from foreclosing while the homeowner is being con- sidered for a loan modification. "Mortgage servicers have a responsibility to help struggling borrowers remain in their home, not to push them into foreclosure," said General Counsel Helen Kanovsky of HUD. "This agreement is another example of how multiple agencies in the federal government and state attorneys general across the country are working to make sure the mortgage industry treats consumers fairly." "Our solid performance in the fourth quarter and strong 11 percent earnings growth for the year are the result of consistent execution of our strategies and the diversity of our business model." —William H. Rogers, Jr., Chairman and CEO, SunTrust Bank