Lone Star Funds to Sell $239 Million of Subprime Debt

Lone Star Funds bought $239 million of mortgages from CIT Group (NYSE: CIT) back in July 2008. It also bought CDOs from Merrill Lynch before its firesale to Bank of America (NYSE: BAC).

Lone Star Funds plans to sell $239 million of securities backed by the CIT subprime mortgages, according to Bloomberg.

Lone Star bought CIT’s home-lending unit for $1.5 billion, taking on $4.4 billion of debt and other liabilities. CIT CEO Jeffrey Peek led the lender into subprime mortgages as housing boomed and he's now trying to avoid bankruptcy by restructuring its debt.

Sales of securities backed by new subprime loans halted in 2007, helping to halt lending to borrowers with poor credit or high debt that once accounted for about 20% of new mortgages.

The $598.4 million of loans underlying the Lone Star sale have an average credit score of 571 out of a possible 850, and the debt exceeds the current worth of homeowners’ properties by more than 6%, according to the document obtained by Bloomberg.

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