MONTGOMERY, Ala.- Colonial Bancgroup said it has signed a letter of intent to sell the servicing rights on $5 billion of mortgages to Homeside Lending of Jacksonville, Fl.

The sale covers what is left of the banking company's servicing portfolio after its February agreement to sell the servicing rights on $9 billion of loans in February to undisclosed buyer. Market source at the time pointed to Chase Manhattan Morgage as the buyer.

In a statement, Colonial said it estimates that the cost of disposing of its mortgage servicing business, net of discontinued operations, will be approximately $4.0 million after-tax. It earned $30 million in the second quarter, or 27 cents per share, up from 4% from the same period last year.

Colonial will join Homeside's stable of "prefered partner" banks, which originate mortgages in their retail branches but leave the work of processing and servicing to the National Australia Bank unit. Others include Bank One, People's Bank of Connecticut and Cendant Mortgage. Homeside served $152 billion ar the end of the first quarter, making it No.6 behind Washington Mutual Inc.

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