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SunTrust’s Mortgage Banking Focuses on Efficiency Improvement

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Mortgage Banking segment

The Mortgage Banking segment of Suntrust (STI) offers residential mortgage products nationally. The company either sells these products, retaining the service rights, or holds them as loans. The segment also services loans for other investors.

The Mortgage Banking segment reported a net loss of $56 million for 2014 compared to a net loss of $527 million for 2013. 2014 results included a $324-million charge relating to legacy mortgage items. Net income adjusted for charges would have been $122 million for the year. The graph above shows the segment’s operating revenues and net income over the last three years.

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Decline of loan originations

The segment’s loan origination volume decreased 45% in 2014 compared to the previous year. This was in line with the industry trend, as the mortgage origination market is facing headwinds. You can read more about this in JP Morgan Mortgage Originations Face Headwinds. 

The servicing portfolio, on the other hand, increased 8%. This increase was largely attributable to the purchase of MSRs (or mortgage servicing rights) in 2014.

Mortgage originations have also been declining for other banks, including JP Morgan (JPM), BB&T (BBT), and Regions Financial (RF). BB&T and Regions Financial make up about 2.7% of the SPDR S&P Regional Banking ETF (KRE). SunTrust Bank forms roughly 5.5% of the iShares US Regional Banks ETF (IAT).

Focus on improving efficiency

One of SunTrust’s key focuses is efficiency improvement across segments. For the Mortgage Banking segment, adjusted non-interest expenses declined due to a number of cost-reduction initiatives undertaken by the company. Staff expenses decreased driven by lower staffing levels, reflecting the decline in loan production volumes and productivity improvement efforts. Non-interest expenses for 2014 declined by 30% compared to the previous year. The company also recorded lower provision expenses largely due to improved credit quality.

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