Canadian lender continues to shrink its US assets after a US$3.1 billion settlement
Bank of America (BofA) is in talks to acquire a US$9 billion portfolio of jumbo mortgages from Toronto-Dominion Bank (TD) as the Canadian lender works to trim assets and comply with US regulatory limits.
The sale to BofA is not yet finalized, with negotiations still ongoing, according to sources who requested anonymity as the details remain private.
Banking appetite
The portfolio consists of jumbo mortgages, loans that exceed the size limits set by government-backed entities Fannie Mae and Freddie Mac. These loans, typically held by wealthier borrowers with high credit scores, fall outside government-supported programs.
Jumbo mortgages differ from conventional loans in that they are too large to qualify for government backing. While they are considered riskier due to their size, they are generally issued to high-net-worth borrowers with strong credit profiles.
Interest in jumbo mortgages could grow among US banks, particularly as regulators consider loosening capital requirements tied to Basel III Endgame proposals. If those rules, intended to make banks hold more capital against residential mortgage loans, are softened or scrapped, banks may increase their exposure to mortgage assets, including jumbo loans.
Why TD is selling the loans
TD has been under pressure to reduce its US footprint since regulators imposed an asset cap of US$434 billion on its US retail banking assets in October 2023. The restriction came as part of a US$3.1 billion settlement after the bank pleaded guilty to failing to prevent money laundering by drug cartels and other criminals.
Read more: TD Bank accelerates CEO transition following regulatory fallout
To stay within the limit, the bank has been shedding low-yielding securities and adjusting its loan portfolio. At a banking conference in January, TD CEO Raymond Chun said the bank was exploring ways to exit certain loan portfolios, signaling the possibility of asset sales like this one.
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