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Wednesday, January 28th, 2009, 9:38 am

Memphis-based First Horizon National Corp. (FHN: 10.22 +3.86%), the bank holding company for First Tennesse Bank, said Wednesday morning that it bank had sold mortgage servicing rights on $14 billion of first-lien mortgage loans owned or securitized by Fannie Mae (FNM: 0.00 N/A) or Freddie Mac (FRE: 0.00 N/A). The move comes as First Horizon has aggressively been pulling back its national mortgage footprint amid continued industry upheaval. The sale reduces the outstanding balance of first lien loans for which First Tennessee holds the servicing rights to $48 billion, from a peak of about $100 billion a year ago, the bank said in a press statement. "While not material to overall quarterly financial results, the transaction is reflective of First Tennessee Bank's ongoing strategy to reduce its investment in mortgage servicing rights," the company said. The sales agreement was signed Tuesday, with a sale date and closing date of Jan. 30, 2009, with legal transfer expected within 90 120 days following the receipt of customary investor approvals. Details on the purchasing party were not provided. First Horizon reported a $55.7 million Q4 net loss on Jan. 16, after reporting heavy losses in mid- and late-2008 and receiving a $866,540,000 injection from the U.S. Treasury's TARP as a transaction under the Capital Purchase Program on Nov. 14, 2008. Write to Paul Jackson at Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

Exit, Stage Left: MetLife to Pick Up First Horizon's National Mortgage Footprint, Servicing Portfolio

MetLife to Acquire Everbank Reverse Mortgage Fitch Affirms MetLife's Mortgage Servicer Ratings MetLife to Provide Reverse Mortgage Program for ABA Banks First Horizon Continues Mortgage Pullback MetLife integrates HECM Saver into reverse mortgage origination platform

Wednesday, June 4th, 2008, 6:00 am

The rumors are true First Horizon National Corp. (FHN: 9.65 -2.03%) said Wednesday morning that it will sell essentially its entire national mortgage footprint to MetLife Bank, N.A. in a deal that will see more than 230 retail and wholesale offices nationwide, and a $20 billion servicing portfolio and platform, change hands. For Tennessee-based First Horizon, the deal involving its First Tennessee Bank franchise marks an expected retreat to regional operations after years of astronomical national growth in the wholesale mortgage origination market: it will retain its 21 mortgage offices in and around Tennessee and associated employees, continuing to originate home loans for customers in its banking market footprint, it said in a press statement. First Horizon was the nation's 17th largest originator in 2007, according to statistics compiled by Inside Mortgage Finance, originating $30.56 billion during last year. It has ranked in the nation's top 25 originators for the last five years. For MetLife, the acquisition marks the bank's stunningly quick move into the national mortgage spotlight in April, the banking subsidiary of insurance giant MetLife, Inc. (MET: 41.09 -0.39%) announced the purchase of Bloomfield, NJ-based EverBank Reverse Mortgage LLC, the former reverse mortgage footprint of Bank of New York. "We're excited about this acquisition," said Donna DeMaio, president, MetLife Bank. "This will significantly accelerate the growth potential of MetLife Bank's residential mortgage business as it allows us to acquire significant expertise, scale and platforms. Combined with our recently announced purchase of EverBank's reverse mortgage business, this acquisition effectively positions MetLife Bank to be a leader in the origination and servicing of mortgage products." The $20 billion in servicing rights acquired do not include subprime or Alt-A loans, MetLife said in a press statement. First Horizon will enter into a sub-servicing agreement for the remainder of its first lien servicing portfolio, both companies said, totalling $65 billion after closing. First Horizon CEO Jerry Baker has been looking to refocus the Tennessee-based bank on regional lending as the mortgage mess has taken a significant bite out of First Horizon's bottom line. In late April, the bank said it would sell up to $600 million in common stock and that it will shift dividend payments to stock in an effort to preserve cash. By allowing its warehouse loans to run off, in addition to the sale of its sizeable servicing portfolio, First Horizon said that it expected assets in its mortgage banking segment to decline by at least $3 billion by year-end 2008, freeing up at least $200 million of tangible capital. For more information, visit and Disclosure: The author held no positions

Mortgage Woes Drive $248.6 Million Q4 Loss at First Horizon


SunTrust Sees Q4 Profit Wiped Out; NPAs Outstripping Loss Reserves

Fifth Third Q4 Earnings Hurt by Charges; Residential Mortgage Charge-Offs Double Flagstar Posts $30.1 Million Fourth Quarter Loss As Delinquencies Rise Flagstar Posts Loss on Switch to Fair Value Option for MSRs 4Q profit dips at PNC, but annual earnings hit record

Friday, January 18th, 2008, 4:09 pm

Memphis-based First Horizon National Corp. on Thursday posted a net loss of $248.6 million, or $1.97 per diluted share, for the fourth quarter as mortgage woes pulled at the bank's bottom line. Rising loan-loss reserves, a reduction in the value of mortgage servicing rights and charges stemming from an earnings enhancement plan all contributed to the loss, First Horizon said. The bank also reduced its dividend by 56 percent to 20 cents per share. Loan loss reserves increased $107 million to $353 million during the fourth quarter, First Horizon said, as the bank bolstered itself for increased losses stemming from an extended downturn in the U.S. housing market. The bank provisioned $156 million during the quarter against net charge-off activity of $54.8 million it's worth noting that charge-offs jumped dramatically during the fourth quarter from $35.8 million in Q3. Residential non-performing assets continued to increase as well, rising 26 percent in the fourth quarter and more than doubling NPA volume from one year earlier. First Horizon saw the value of its servicing rights drop by more than 20 percent on a quarter-to-quarter basis to $1.16 billion, as the bank said its servicing assets reflected lower values "from observable market inputs." The drop in MSR valuation contrasts sharply with an earlier earnings report from JPMorgan, which had boosted the value of its servicing rights by nearly $500 million as the Wall Street firm estimated a significant drop in prepayment activity.

First Horizon Sees Profits Fall Nearly 90 Percent; May Consider Exit from Mortgage Banking?

Mortgage Woes Drive $248.6 Million Q4 Loss at First Horizon Wells Fargo Beats Estimates, Despite Soaring Losses on Junior Liens SunTrust Sees Q4 Profit Wiped Out; NPAs Outstripping Loss Reserves Horizon Warns on Further Loan Loss Expenses Flagstar Sees Credit Costs Bite Bottom Line in Q3

Thursday, April 17th, 2008, 9:55 am

First Horizon National Corp. (FHN: 9.65 -2.03%) said Thursday that first quarter earnings took a steep hit, as the Memphis, Tenn.-based bank continues to deal with with worsening credit quality and a mortgage

business gone sour. The bank reported earnings of $7.9 million, $.06/share, compared with a profit of $70.5 million, $.55/share, one year ago. Reuters reported that the earnings missed analysts expectations; most had pegged First Horizon's first quarter result at 11 cents per share, the news agency said. Provisioning for future loan losses rose to $240 million in Q1, up from $156.6 million at the end of 2007, as the bank cited "portfolio deterioration due to declining economic conditions, especially in national construction and home equity loans." Net charge-offs on bad loans reached 181 basis points relative to assets, up from 93 basis points one quarter earlier. A basis point is one one-hundredth of a percent. Non-performing assets, usually defined as loans 30 or more days delinquent but not yet charged off, reached 278 basis points relative to assets in Q1, up from 166 basis points in Q4. That's an eye-popping jump of 78 percent in NPAs in just one quarter, for those keeping track of such things. A mortgage exit? First Horizon has been scaling back it mortgage business, and said Thursday that it had sold $7.5 billion in servicing rights during the first quarter; the bank expects to unload another $9 billion or so in the second quarter of this year, company executives said on a conference call with analysts, moving the total loan portfolio well below the $100 billion mark. From Reuters, an admission that the bank may actually even exit mortgage banking altogether: The sales will bring the bank's servicing portfolio down to $90 billion by the second quarter, freeing up capital and lowering hedge costs, the bank said. "We are focused on reducing our balance sheets and lower-return businesses such as mortgages," Baker said. Baker said closure of the mortgage banking business "could always be an option" and said First Horizon is still looking for strategic partners for that segment.

Agency Bond Transparency Derailed by Brokers Avoiding Finra Trade Reports

By Jody Shenn - Nov 16, 2010 12:00 AM ETTue Nov 16 05:00:35 GMT 2010

The second-largest underwriter of debt from issuers such as Fannie Mae, First Horizon National Corp., of Memphis, Tennessee, is among firms that dont report trades through the Financial Industry Regulatory Authority. Photographer: Andrew Harrer/Bloomberg Brokers are frustrating efforts by regulators to bring transparency to the $2.7 trillion market for federal agency debt, keeping bond investors in the dark. The second-largest underwriter of debt from issuers such as Fannie Mae, First Horizon National Corp., of Memphis, Tennessee, is among firms that dont report trades through the Financial Industry Regulatory Authority. Finra, the non-governmental regulator for almost 4,700 brokerages in the U.S., began requiring eight months ago that brokers post transactions through its bond-price reporting system within 15 minutes. About a dozen banks arent participating in Finras plan, said Mike Nicholas, chief executive officer of the Bond Dealers of America. They may undercut expanding the Trade Compliance and Reporting Engine, or Trace, to more types of debt, including the $5.3 trillion market for mortgage bonds guaranteed by Fannie Mae and Freddie Mac or federal agency Ginnie Mae, which provide more than 90 percent of the funds for U.S. home lending, according to industry newsletter Inside Mortgage Finance. The information Finra is sharing to the public is wrong, said Nicholas, whose group includes Wells Fargo & Co. and Fifth Third Bancorp. Its not capturing the entire market. The gaps underscore shortcomings in the biggest overhaul of financial-industry oversight since the 1930s. One of the aims of the Dodd-Frank legislation was to avoid a repeat of a crisis that led to the failures of Lehman Brothers Holdings Inc. and Washington Mutual Inc. and a $700 billion bailout for companies including American International Group Inc. by addressing breakdowns in supervision when multiple regulators are responsible for individual markets and banks. Agency Trades Excluded

While Dodd-Frank, enacted in July, created a board of regulators to oversee the biggest financial companies, it doesnt address reporting of trades in the agency market, which represents almost 8 percent of the $35.3 trillion in U.S. bonds, according to the Securities Industry and Financial Markets Association, the New York-based trade group. Finra expanded Trace to the market for agency debt in March after gaining Securities and Exchange Commission approval. We were all looking for convergence of regulation and, unfortunately, in this case it just hasnt happened, said Dan Leland, head of fixed income at SWS Group Inc.s Southwest Securities in Dallas. The firm was founded in 1972. Agency debt includes corporate bonds sold by government-supported Fannie Mae, which along with Freddie Mac owns or guarantees about half of U.S. residential debt; the Federal Home Loan Bank system, the 12 government-chartered lenders to financial companies; the Federal Farm Credit Banks; and the Tennessee Valley Authority. The notes all carry top ratings because of the issuers explicit or implied government backing. Loophole to Address While Wall Streets largest dealers are participating in Trace, brokers that are divisions or units of banks have been able to avoid the type of disclosure thats made it cheaper for everyone from mutual funds to individuals to buy and sell corporate bonds. Thats because those firms dont all report to Finra. There appears to be a loophole that needs to be addressed, said Kumar Venkataraman, an associate finance professor at Southern Methodist Universitys Cox School of Business in Dallas who has studied Traces effects on the corporate market. Trace Expansion Finra, based in New York and Washington, and the Office of the Comptroller of the Currency, which monitors federally chartered banks, say theyre looking into the exceptions. Regulators are working cooperatively toward solutions, said Steven Joachim, executive vice president for transparency services for Finra.

Some have brought this to our attention as a possible issue and we are looking into the matter, said Kevin Murki, a spokesman for the OCC. Trace, which started in July 2002, provides trading details on corporate and agency bonds to anyone with an Internet connection. The information includes the most-active bonds, volume, advances, declines, highs and lows. Finra plans to start collecting trading data in May for agency mortgage bonds, as well as $3 trillion of riskier securitized debt. At first, that information wont be released publicly as Finra studies whether disclosing the data would confuse investors. Voluntary Reporting Pursued First Horizons FTN Financial Capital Markets unit, one of the companys two arms that handle trading for its securities business, didnt intentionally opt out of Traces expansion, spokesman Jack Bradley said in an e-mail. The firm is exempt because its regulated by the OCC, Bradley said. The unit has pursued with its regulators avenues to voluntarily report agency trades to Trace, but has been informed that Finra is not able to accept those trades, he said. FTN has underwritten 921 sales of agency debt this year, second only to UBS AGs 1,126, and the amount of securities totals $43.5 billion, compared with $146.3 billion for the Zurich bank, according to data compiled by Bloomberg. The company has not made any changes in its longstanding operating structure as a result of the recently enacted Trace reporting requirements, Bradley said. FTN Financial Securities Corp., which is a subsidiary rather than a division of First Tennessee National Bank, is regulated by Finra and reports agency trading it handles to the regulator, he said. Traders can tell which banks are reporting transactions to Trace based on requirements that they identify in reports whether theyre trading with a broker or customer, said Nicholas of the bond dealers association. Trading Profits Curbed

Exceptions for Trace reporting dont apply to corporate bonds because rules for banks limit the amount of their trading in that debt and exempt government-related securities. Corporate bonds also require banks to hold more capital than agency debt, making carrying the securities in trading inventories more expensive. Trace has curbed trading profits in corporate bonds, as measured by the shrinking difference between bid-ask spreads on investment-grade company debentures. The difference at which investors can buy or sell the same securities shrank to 4 basis points, or 0.04 percentage point, from 7 basis points before Trace, according to a study Venkataraman published in 2007 in the Journal of Financial Economics. The larger the gap, the more the securities firms in the middle can earn. As securities are more easily traded, one would expect that a reduction in transaction costs would result in increased returns for investors and, in an equilibrium, that part of the savings would be passed on to whoevers borrowing the money,he said in a telephone interview. Technology Savings Bid-ask spreads yesterday on some actively traded Fannie Mae, Freddie Mac and FHLB notes maturing in 5 years were about 1 basis point to 3 basis points, the same as in March 2009, when the Trace expansion was proposed, Bloomberg data show. Along with being able to avoid disclosing how much they paid for agency debt when trying to sell it, brokers that dont report save on technology expenses, reporting fees and potential fines for late disclosures, Southwest Securities Leland said in a telephone interview. The next step in this thing if it stays this way, is some of the even bigger players say, This is a cost-saving move why shouldnt we do it, he said. Writing new rules for Dodd-Frank has distracted government departments from the agency issue, Nicholas said. Thats ironic, considering the goals of the financial-overhaul law, he said. The coordination is not good, which should have been addressed, Nicholas said.

To contact the reporter on this story: Jody Shenn in New York at To contact the editor responsible for this story: Alan Goldstein at


Mortgage Repurchase Requests on Rise

By Laurie Kulikowski 03/04/10 - 01:05 PM EST

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Stock quotes in this article:BAC, C, STI, JPM


NEW YORK (TheStreet) -- Banks are facing a wave of requests to repurchase troubled mortgage loans in yet another ripple effect from the housing bust. More on BAC

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The pushback from the parties now stuck with the loans-- namely Fannie Mae(FNM_) and Freddie Mac(FRE_) -- began in earnest in the second half of 2009. With delinquencies and foreclosures still running at record highs, there's no sign the demands will begin to abate anytime soon.

Bank of America (BAC_), Citigroup (C_), JPMorgan Chase (JPM_), SunTrust Banks(STI_) and First Horizon(FHN_), are among the institutions that have pointed to increasing requests for added documentation on mortgage loans they've underwritten and since sold or securitized, according to recent regulatory filings and investor presentations. Such requests are precursors to kicking the loans back to the banks if problems are found and it's determined the loans should never have been approved in the first place. While repurchases are typically requested of defaulted or seriously delinquent loans, Fannie and Freddie are scrutinizing loans much more closely these days as they try to shore up their own loan books in the face of outsized losses in the wake of the recession. Not all of the loans being requested for repurchase are nonperforming -- some just look iffy -- all are single-family residential loans with vast majority of those currently being questioned classified as prime loans, observers say. Last year, banks made $30.87 billion in mortgage loan repurchases vs. $7.34 billion in 2008, according to trade publication Inside Mortgage Finance. Eighty-four percent of the repurchases came in the second half of the year, according to the Bethesda, Md.-based trade publication. In addition to Fannie and Freddie, the pushback is being fueled by demands from private mortgage insurers and monoline financial guarantors including MGIC Investment (MGIC_) and Radian (RDN_). These companies are looking to limit their own losses from defaulted mortgages through loan put-backs to originators and also by denying claims on mortgage insurance. Moody's Investor Service estimated in a December report that the mortgage insurers had rescinded roughly $6 billion of submitted claims since January 2008 and could potentially rescind an additional $2 to $4 billion of claims in the next few years. Additionally, financial guarantors have recorded more than $4 billion of credits for loan put-backs, Moody's said. Mortgage repurchase information for individual companies is spotty at best. Not all banks provide the data and of those that do, the information is not uniform. (Wells Fargo (WFC_) for instance, one of the largest mortgage lenders in the U.S., made no mention of mortgage repurchases in its annual filing, while its large bank peers did).

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Still, from the information that is available, it's clear that mortgage loan repurchases are becoming increasingly burdensome for the banks, and could hold back their stocks. "A significant investor concern about bank stocks with major mortgage banking operations in the past few weeks has been that mortgage insurers, particularly the GSEs, would increasingly challenge the originators' representations and warranties that the loans were properly originated in the first place," writes Oppenheimer analyst Chris Kotowski in a recent research note. "In such cases, the originator, not the insurer, is liable for any losses." Kotowski estimates that 2% to 4% of loans that are delinquent or in foreclosure get put back to the originators. He expects "earnings drag" from the problem will be "manageable," likely in the "several hundred million per quarter range for each company, and not in the several billion per quarter range," he writes. JPMorgan, which says that repurchase demands and associated loan losses have "grown significantly" over the last 12-18 months, attributes the increased repurchase requests to problems with representations made by the borrower when applying for the loans, and also with warranties placed in contracts when the loans are sold. Remember a majority of these loans were made in the days where income only had to be stated, not verified, and other financial documentation was not required. So the borrower could have provided incorrect income or employment information, or else didn't disclose additional credit availability or debt. A misrepresentation in the appraisal could also be a factor. "Historically, up until a year or two ago, it wasn't an issue," Charlie Scharf, JPMorgan's head of retail financial services, said during the company's investor day last week. "It's become a very meaningful issue and it will continue to be an issue for the next couple of years." Last year, JPMorgan bought back $1.08 billion worth of troubled mortgage loans, and it's currently receiving requests for added documentation running at roughly $1 billion worth of loans per quarter,

according to presentation slides. JPMorgan said that recent repurchase demands have been concentrated in loans originated primarily in the 2005 through 2007 period, essentially the height of the bubble. More on BAC

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Scharf said that, of the loan questions it's receiving, 50% of the requests have been "successfully rescinded, which means we cured them by providing an additional document." Also, he noted the company is able to claim back any losses on 40% of the loans that were originated by a third party and purchased by the larger bank. Still "the demands are not abating. We would expect them to continue at least through next year" at roughly the same volume, Scharf said. As of Dec. 31, JPMorgan had built up $1.5 billion worth of reserves in its retail financial services business for repurchase demands. The regionals are also being affected. SunTrust's fourth-quarter loss included $220 million in estimated losses related to the potential repurchase of mortgage loans previously sold to third parties. That figure is nearly four times the $60.4 million in similar losses it recognized in the fourth quarter of 2008. The bank has put in place a reserve for losses related to the repurchases rose to nearly $200 million, up $77 million, from the prior quarter. SunTrust says the majority of repurchase requests are on loans originated in 2007, before tightened underwriting guidelines and other changes were implemented. "The increased demand activity has allowed us to recalibrate and refine the precision of our estimate of incurred losses, and as a result, we have more confidence that the reserve should not increase significantly from here," SunTrust's CFO Mark Chancy said during the company's quarterly conference call. "As for charge-offs, fourth-quarter request volumes and vintage composition suggest that losses are likely to remain elevated over at least the next quarter or two."

Fannie Mae acknowledged in its annual filing with the Securities and Exchange Commission that in order to minimize credit losses it must "aggressively pursue collections on repurchase and compensation claims due from lenders and mortgage insurers," among other things. The government mortgage agency said that as delinquencies have increased on purchased loans, it has "increased our reviews of delinquent loans to uncover loans that do not meet our underwriting and eligibility requirements," according to the filing. "We expect the amount of our outstanding repurchase and reimbursement requests to remain high throughout 2010." More on BAC

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Fannie Mae's largest single-family mortgage servicer is Bank of America, followed by JPMorgan and Wells Fargo. "Right now the only entities that are really doing any significant amount of repurchases and have the clout to do it is Fannie Mae and Freddie Mac," says Guy Cecala, CEO and publisher of Inside Mortgage Finance. "It started showing up in 2008. It took off in 2009." But unlike in past periods, banks are now looking at their options in regards to honoring repurchase requests. "Historically repurchases have always gone on, but haven't been a huge amount. There's really never been any pushback on it because you couldn't push back on it (to Fannie/Freddie). Now the numbers are so big they're getting plenty of pushback even from the big lenders," Cecala says. Bank of America acknowledged increased repurchase demands were resulting in disputes with thirdparty buyers and financial guarantors. "We expect to contest such demands that we do not believe are valid. In the event that we are required to repurchase loans that have been the subject of repurchase demands or otherwise provide indemnification or other recourse, this could significantly increase our losses and thereby affect our future earnings," Bank of America warned in its own annual filing.

The repurchase of delinquent government-insured loans from securitizations added $9.4 billion to Bank of America's loans that were at least 90-days delinquent, despite still being insured, Joseph Price, formerly the company's chief financial officer and now its head of consumer and small business banking, said during the company's fourth-quarter conference call. With the consensus being that requests and subsequent repurchases will remain elevated in the near term, the question becomes how long will the cycle persist? "The good news is it's the kind of fallout that comes in the second half in the credit crisis but it could last," says Cecala of Inside Mortgage Finance. "As long as we have record foreclosures, you're going to have record repurchases and [loan] buy backs." Mortgage banking consultant and industry veteran Corky Watts expects to see a trickle-down effect with the repurchased loans as more banks look to third-party bankers to assume the risk of loans that were sold to them More on BAC

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"It's kind of like a pecking order," Watts says, whose clients are small- to mid-size independent mortgage bankers. "[When] large banks have issues from agencies they're probably going to go back to small mortgage banker who originally sold them the loans and if there is a defect or repurchase they may come back to small mortgage banker and ask them to repurchase the loan." On a positive note though, mortgage brokers are becoming "really good at insuring every loan and making sure every loan is high quality," Watts says. "In the long run that's going to be very positive for the industry." --Written by Laurie Kulikowski in New York.