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LIVINGSTON, NJ-CIT Group Inc. is exiting the home lending business with the sale of $9.3 billion worth of assets and related servicing operations to Lone Star Funds. Lone Star will provide $1.5 billion in cash and will assume $4.4 billion of outstanding debt and other related liabilities. In addition, the company is selling its $470 million manufactured housing portfolio to Vanderbilt Mortgage and Finance Inc. for approximately $300 million.

As previously reported on GlobeSt.com, CIT has been working to cut expenses and reduce staff due to recent market conditions. The company took a heavy hit through subprime losses and reported a loss of $130.7 million in the fourth quarter of 2007, primarily related to charges on the home lending and student lending businesses.

“Over the past several quarters, the senior management and the board of CIT have been focused on ways to improve our performance in the current challenging environment,” said Jeffrey Peek, chairman and CEO of CIT during an investor conference call. “Much of this effort has been directed towards reducing the overhang of our mortgage exposure.”

According to Peek, CIT made the decision to divest its home lending business a year ago, and the company received several inquiries about the portfolio. After a two-round bidding process, CIT decided to sell to Lone Star, due to the buyer’s willingness to negotiate on price and terms.

“The sale is at a significant discount to the unpaid principal balance of these assets, but we think the price is fair given the performance of the portfolio, the overall housing market and the range of possible outcomes we modeled for the portfolio going forward,” Peek explained.

Peek pointed out that the sale represents several benefits for CIT. Perhaps the most important is the fact that it allows the company to dispose of a liquidating portfolio and will allow it to focus on its more profitable core business of commercial finance franchises. In addition, the infusion of nearly $2 billion in cash from the two transactions is expected to improve the company’s liquidity position and gives CIT more financial flexibility.

The company is expected to record a loss in the current quarter of approximately $2.5 billion. The sale itself represents an approximate total loss of $2 billion, according to CIT’s vice chairman and CFO, Joseph Leone, who also spoke during the conference call.

“The CIT board, senior management and I all agreed that the action we’re taking today is clearly in the best interest of all CIT stakeholders,” Peek concluded. “While one never likes to recognize a loss on the sale of a business, we are pleased we were able to execute a deal of this magnitude and nature in the current challenging environment.”

CIT, which is headquartered in Livingston, operates one of its two home lending servicing centers in Marlton, NJ. The Marlton center and the second center–in Oklahoma City, OK–together employ approximately 300 people. Peek did not mention whether or not the workers would stay with the servicing centers, and calls to CIT seeking further comment were not returned as of deadline. Lone Star declined to comment on the transaction or its future plans for the business.

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