SANTA ROSA, Calif. - Redwood Empire Bancorp's Allied Bank subsidiary has sold $76.5 million of mortgage loans tied to the Federal Home Loan Bank's 11th District cost-of-funds index.

A subsidiary of Lehman Brothers was the buyer, and Lehman securitized $73.2 million of the loans into senior mortgage pass-through certificates and placed them in a real estate mortgage investment conduit trust.

The senior certificates are rated AAA by Standard & Poor's Corp. and Aaa by Moody's Investor Service Inc., Redwood Empire said in a press release.

Allied Bank will be master servicer of the loans.

Lehman also securitized an additional $3.25 million of Cofi-based loans subordinated to the senior certificates. Allied will hold the junior paper in its own portfolio. The subordinated certificates are not rated.

The transaction enabled Allied Bank to liquidate its entire position in Cofi-based mortgage loans held for sale.

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