First Horizon Agrees to Sell $4.5 Billion Residential Mortgage Portfolio at 10% Discount
Tennessee-based First Horizon Bank has entered into an agreement to sell approximately $4.5 billion in low-yield residential mortgage loans at a discount of roughly 10%. The transaction, which involves loans carrying a weighted average interest rate coupon of 3.85%, reflects an ongoing effort by regional lenders to shed lower-performing balance sheet assets in a prolonged environment of elevated interest rates. The sale specifically targets residential mortgages that generated minimal deposit activity for the institution.
The targeted portfolio was associated with only about $200 million in customer deposits. Bank leadership indicated that they deliberately excluded mortgages connected to private banking and wealth management clients to protect core relationship accounts. First Horizon reached the sale agreement in October and expects final settlement early in the fourth quarter. While the identity of the buyer was not disclosed, the transaction required First Horizon to recognize a $473 million impact to noninterest income during the third quarter, pushing the bank to a quarterly net loss of approximately $79 million.
From a corporate balance sheet perspective, the asset sale allows First Horizon to reallocate capital and strengthen its liquidity profile. Bank management projects that shedding the discounted loan book will reduce its loan-to-deposit ratio to approximately 88%. Over the longer term, executive analysis indicates the move will be accretive to earnings, estimating a 4% boost to earnings per share by 2027 alongside a 150 basis point improvement in return on tangible common equity as capital is freed up for higher-yielding opportunities.
For real estate investors, finance professionals, and industry observers, this divestment illustrates how commercial banks are actively reshaping their credit exposure. Lenders holding large volumes of legacy, sub-4% residential mortgages face yield drag and tighter liquidity. By taking an upfront charge to sell low-yielding residential mortgages on the secondary market, financial institutions can free up liquidity to support core balance sheet goals and originations at prevailing interest rates.
The practical implication for real estate market participants centers on secondary market dynamics and credit conditions. While individual borrowers whose loans are included in the sale will retain their existing contract terms and interest rates, the transaction demonstrates ongoing institutional demand for discounted loan books. Similar portfolio sales by regional banks could continue across the sector, helping financial institutions clear low-yielding liabilities and stabilize lending capacity heading into future quarters.
Source: HousingWire
