Colonial Bancgroup said Thursday that it has reached a deal with an unnamed party to sell the bulk of its mortgage servicing portfolio.

The company did not identify the buyer, but sources said it was Chase Manhattan Mortgage Corp., one of the industry's leading servicers, with a portfolio of $311 billion at Dec. 31. A spokeswoman for Chase declined to comment.

Montgomery, Ala.-based Colonial said it would sell about $9 billion of its portfolio for an undisclosed price. The deal is expected to close by the end of this quarter and would leave Colonial with a $5.5 billion portfolio to service, made up mostly of loans generated by its branch network.

Analysts applauded the move.

"The mortgage business is changing very quickly, and it is becoming a real time constraint on management," said Christopher T. Kelley, an analyst at Morgan Keegan & Co. in Memphis.

Colonial's servicing portfolio was rumored to be on the block last year, when the $10.6 billion-asset company sold its wholesale mortgage production offices. It is believed that Colonial was unable to find an acceptable bid for the servicing rights then.

Speculation about a sale resurfaced with the emergence of trends that boosted the portfolio's value. These trends include rising interest rates that have made homeowners less apt to pay off their mortgages early. This, in turn, gives servicers better assurance of collecting fees for a longer period.

"I have to imagine that the prices offered were very good right now," Mr. Kelley said.

Shares of Colonial were up 12.5 cents at midday Thursday, to $9.125.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.