HomeStreet Bank Sells Loans to Bank of America

(Reuters) – HomeStreet Bank is selling nearly $990 million of its multifamily commercial real estate loans to Bank of America. This deal, according to the Seattle-based lender, will aid in returning to profitability and reducing expensive funding sources.

BofA has agreed to pay about $906 million for the loans—approximately 92% of the portfolio's value. HomeStreet noted that the slight discount is due to "the current interest rate environment and that the loans being sold are primarily lower yielding."

This transaction signifies a crucial milestone for HomeStreet as it redefines its path towards profitability following four consecutive quarters of adjusted losses. Moreover, it may address some investor worries after regulators stalled the bank's planned merger with FirstSun Capital Bancorp.

Following the announcement, shares of HomeStreet surged nearly 6% in early trading.

HomeStreet CEO Mark Mason stated, "Entering into this agreement … is the first step in implementing a new strategic plan, which we expect to result in a return to profitability for the bank and on a consolidated basis early next year."

The proceeds from this sale will be utilized to repay some debt from the Federal Home Loan Bank and to decrease costly brokered deposits, which incur higher interest rates than core deposits, according to HomeStreet.

Commercial real estate loans, particularly those linked to multifamily properties—apartment buildings with more than four units—have raised concerns among regional banks as rising interest rates burden borrowers.

However, major banks like BofA have better managed the situation due to higher capital levels, sufficient deposits, and lesser exposure to commercial real estate loans.

An easing of pressure on these loans is anticipated as the Federal Reserve lowers interest rates.

The sale is expected to finalize before December 31, and HomeStreet will continue to service the loans post-sale.