First Horizon Reports Loss as Mortgage Repurchase Costs Rise

Mortgage & Real Estate

First Horizon National in Memphis swung to a big loss in the third quarter after reaching an agreement to repurchase soured loans from Fannie Mae, it announced Friday.

The $24.2-billion-asset company set aside $200 million to cover its repurchase agreement with Fannie as well as higher estimated losses from the mortgage business it sold in 2008, leading to a third-quarter loss of $107.5 million, or 45 cents per share. Analysts polled by Bloomberg had expected profit of 19 cents a share.

The agreement with Fannie, which was reached this week and has to be approved by the Federal Housing Finance Agency, would resolve repurchase obligations for loans sold between 2000 and 2008.

The $200 million is intended to provide for the Fannie repurchase obligations, which covered a broader group of loans than First Horizon had previously thought, as well as higher estimates for losses from loan delinquencies and modifications and expenses on servicing rights the company has already sold.

First Horizon also agreed to sell its remaining mortgage-servicing rights, it announced Friday. It did not disclose the buyer or the price. It held servicing rights with balance of $117 million at the end of the third quarter.

First Horizons net interest income fell 8%, to $158.8 million, compared with the third quarter of 2012, as net interest margin decreased by 18 basis points, to 2.97%. It made a provision for loan losses of $10 million, 75% lower than a year earlier, and net chargeoffs dropped 80%, to $16.2 million.

Noninterest income fell 8%, to $150.6 million, as revenue from First Horizons capital-markets operations fell 20%, to $64.3 million. Mortgage banking income rose 39%, to $14.5 million.

Noninterest expense fell, apart from the $200 million set aside for repurchases and foreclosures. Compensation costs dropped by 14%, to $132.2, while occupancy costs and legal fees rose slightly.

Federal agencies including the Justice Department and the Department of Housing and Urban Development had been probing First Horizon for possible violations under the False Claims Act relating to mortgages it sold that were insured by the Federal Housing Administration. It is unclear whether the agreement with Fannie will resolve the probe.

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