Grasek on Monday upgraded the Atlanta lender to an "Overweight" rating from "Equal Weight," while raising her price target for the shares by two dollars to $29, saying that the "Street is underestimating the strength of this refi cycle," and that the stock is "pricing in falling mortgage origination revs through 2012."
For the first quarter, SunTrust reported $63 million in mortgage production income, compared to mortgage losses of $62 million in the fourth quarter, when the company increased its mortgage repurchase provision. The big drive for increased mortgage loan origination is the Home Affordable Refinance Program, or HARP, which was expanded by President Obama during the first quarter to allow qualified borrows with mortgage loans held by Fannie Mae (FNMA) or Freddie Mac (FMCC) to refinance their entire loans balances, no matter how much the value of the collateral property has declined.
Graseck expects that "high gain-on-sale margins" on sales of new loans, primarily to Fannie Mae, "+ high refi demand + declining
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