Bank of America has agreed to acquire a $9bn portfolio of residential jumbo mortgage loans from Toronto-Dominion Bank (TD Bank), reported Bloomberg, citing sources.
The Canadian lender is divesting certain holdings to comply with a new regulatory asset cap.
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The portfolio consists of jumbo mortgages from US homeowners with high credit scores.
Jumbo mortgages are loans exceeding the size limit of conventional loans, making them ineligible for government-backed programmes.
Borrowers of these loans typically have prime credit ratings. The sale to Bank of America is not yet finalised, with discussions ongoing.
US banks’ interest in mortgages, including jumbo loans, may rise as anticipated regulations, known as Basel III Endgame, could be lessened or discarded.
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By GlobalDataThese regulations would have required lenders to hold more capital against residential mortgage loans.
For TD Bank, the sale is part of efforts to adjust its balance sheet to meet a $434bn cap on its US retail banking assets.
This cap was imposed following a guilty plea for failing to prevent money laundering by drug cartels and other criminals.
In October last year, TD Bank agreed to pay nearly $3.1bn in fines and penalties. The restructuring involves selling up to $50bn in lower-yielding investment securities and reinvesting the proceeds.
TD Bank is said to be Canada’s second-largest bank and tenth in the US.
The US government has criticised TD Bank for ignoring warning signs from high-risk clients, creating an environment that enabled illicit activities, Reuters reported.
In one instance, TD Bank was linked to processing over $400m in transactions used to launder money for individuals trafficking fentanyl and other drugs.
Additionally, the bank faced allegations of failing to properly monitor over $18tn in customer transactions over a decade.
