Financial giant Bank of America (BAC) has agreed to purchase a $9 billion portfolio of residential mortgage loans from Canadian company Toronto-Dominion Bank (TD), according to Bloomberg sources. The portfolio is made up of jumbo mortgages, which are loans that exceed the size limit of conventional loans backed by government entities like Fannie Mae and Freddie Mac.
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Toronto-Dominion Bank is selling its portfolio in order to comply with a regulatory cap that was placed on its U.S. retail banking assets, which was imposed as part of a guilty plea for failing to prevent money laundering. As a result, the bank has been adjusting its balance sheet so it can meet the roughly $434 billion cap. While the sale to Bank of America is not yet finalized, it is still a significant step in TD’s efforts to comply with regulatory requirements.
The sale may also reflect a growing appetite for mortgages among U.S. banks, particularly for jumbo loans. With anticipated regulations known as Basel III Endgame likely to be watered down or scrapped, lenders may be more willing to take on residential jumbo mortgages that are typically taken out by wealthy borrowers with prime credit ratings.
Which Bank Stock Is the Better Buy?
Turning to Wall Street, out of the two stocks mentioned above, analysts think that BAC stock has more room to run than TD. In fact, BAC’s price target of $52.86 per share implies 11.5% upside versus TD’s 4%.
