SunTrust Banks Inc. (STI), Georgia's biggest lender, agreed to a $65 million settlement with Freddie Mac covering refunds for faulty mortgages.

The accord covers about 312,000 loans made from 2000 to 2008, Atlanta-based SunTrust said today in a statement. The deal includes a one-time cash payment of $40 million to Freddie Mac and $25 million in credits for prior repurchases, the bank said. SunTrust said it expects the agreement to trigger a $15 million mortgage provision expense in the third quarter.

Freddie Mac agreed to an $869 million settlement with San Francisco-based Wells Fargo & Co., the largest U.S. home lender, to settle disputes over faulty loans sold to the government-backed firm before Jan. 1, 2009, according to a separate statement yesterday. New York-based Citigroup Inc., the third-biggest U.S. bank, agreed to pay Freddie Mac $395 million to resolve claims.

The SunTrust agreement releases the lender from "certain existing and future repurchase obligations," the bank said in today's statement. It also "compensates Freddie Mac for certain outstanding and potential future losses relating to denials, rescissions and cancellations of mortgage insurance."

SunTrust rose 1.2 percent to close at $32.80 in New York. The shares advanced 16 percent this year, trailing the 22 percent gain of the 24-company KBW Bank Index (BKX).

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