CIT Group has agreed to sell its home lending business to Lone Star Funds, according to today’s company release.

The home lending business consisting of $9.3 billion in assets and related servicing operations was sold for $1.5 billion in cash, as well as Lone Star’s assumption of $4.4 billion of outstanding debt and other related liabilities.

To disassociate from all home lending business, CIT sold its $470 million manufactured housing portfolio to Vanderbilt Mortgage and Finance for $300 million, making the net cash proceeds from the two transactions nearly $1.8 billion.

CIT expects a home lending pretax loss of $2.5 billion in the second quarter, consisting of an estimated $2.2 billion loss on sale and $350 million loss from operations.

Home lending will be accounted for as a discontinued operation, while the sale of the portfolios is scheduled to be completed in July and transfer of the servicing platform by 1Q09.

The company’s exiting from all home lending business makes it one that is focused entirely on commercial finance, a move that Chief Executive Officer Jeffrey Peek said will help reduce risk and enhance liquidity.

JPMorgan Chase and Morgan Stanley served as financial advisors to CIT. Wachtell, Lipton, Rosen & Katz and McKee Nelson served as CIT’s legal advisors during the transaction.

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