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First Horizon Ups Its Bad Mortgage Risk

NEW YORK ( TheStreet) -- First Horizon National Corp. (FHN - Get Report) late on Monday announced second-quarter charges of $272 million "for mortgage repurchase and litigation matters."

In what is likely to be a trend, considering the more aggressive stance taken by the government-sponsored mortgage giants Fannie Mae (FNMA) and Freddie Mac (FNCC) in pursuing mortgage putback claims against lenders selling mortgage loans originated from 2005 through 2008, First Horizon said it decided to increase its mortgage repurchase reserve from $161 million as of March 31, after the company "obtained significant new information from Fannie Mae" on sold loans the company was no longer servicing.

Fannie Mae and Freddie Mac -- together known as the government-sponsored enterprises, or GSEs -- were taken under government conservatorship in 2008.

First Horizon now expects "to realize approximately $60 million of loss which will be charged against the reserve," leaving its June 30 mortgage putback reserve at an estimated $351 million as of June 30. The company said that "unless GSE repurchase practices or outcomes change significantly, First Horizon expects that the mortgage repurchase reserve established as of the end of the second quarter will be sufficient for losses resulting from current pending and projected repurchase requests from the two GSEs."

Freddie Mac previously said in its first-quarter 10-Q filing that its revised loan sampling methodology "could further change in ways that further increase our repurchase request volumes with our seller/servicers."

First Horizon said that including the second-quarter losses, the company's cumulative mortgage putback losses totaled about $750 million, or 1.3% of $57.6 billion in mortgage loans sold to Fannie and Freddie from 2005 through 2008.

Regarding private-label mortgage putbacks, First Horizon said it was "not aware of new lawsuits or material new formal repurchase demands by third parties seeking repurchase, rescission, or damages related to loans sold in connection with private securitizations."

During a conference call late on Monday, First Horizon National CFO William Losch expressed confidence that the company wouldn't see further unexpected rises in mortgage loan putback demands from Fannie Mae, as the GSE had given "a view of how they've historically selected loans for repurchase requests, how they anticipate to select loans, both liquidated and delinquent, in the future, and gave us a lot of insight into how they come up with that." Losch added that "our cumulative average rescission rates that we've talked about for several quarters, average loss severity, were generally consistent with what we saw in the new data."
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