Analyst Praises SunTrust's MSRs.(mortgage servicing rights)

SunTrust Banks, the 10th largest bank in the U.S., is poised to reap greater benefits from an improving economy than some of its rivals, according to a recent report from Sandler O'Neill.

And mortgage servicing is one of the business lines that should help SunTrust outpace its competitors in an improving economy, Sandler O'Neill vice president Kevin Fitzsimmons said in his report.

Other strengths for SunTrust include its wealth management, investment banking and large corporate lending business units.

SunTrust's exposure to areas hardest hit by the economic environment in recent years, including mortgage servicing, contributed to its sluggishness, according to Sandler O'Neill.

SunTrust, which services $64 billion of home loans, is a top-20 mortgage servicer, Sandler O'Neill noted. This business should benefit from slower prepayments as rates rise, helping to offset lower loan origination volume.

"We expect the likely increase in mortgage servicing income to be viewed as higher quality vs. that of most peers, mainly stemming from SunTrust's more conservative approach to adjusting the values of MSR assets," Mr. Fitzsimmons said.

By contrast, most competitors use a pooled approach to valuing MSRs, while SunTrust uses a loan-by-loan approach, actually attaching an MSR asset to each related loan. ...