North Carolina-based Wachovia Corp. (WB) has sold off a chunk of troubled residential construction loans out of portfolio, according to a published report Wednesday. A joint venture headed up by LandCap Partners is slated to buy the loans, which have a book value between $75 million and $80 million, for roughly 50 cents on the dollar, the Wall Street Journal reported. The loans involve 2,900 lots in varying stages of development throughout such hard-hit states as California, Arizona and Florida; many are distressed, as well. Wachovia will hold a minority position in the venture, the Journal reported, although it did not specify the interest the bank will have in the venture. The sale represents but a small chunk of Wachovia’s $24 billion in construction and land loans, however; a good chunk of these loans were delinquent at the end of the second quarter. Construction loans are one part of a much larger pool of problematic loans at Wachovia; the bank said on August 12 that it lost $9.11 billion during the second quarter, and that it would lay off 6,950 jobs as it looks to slash expenses amid an ongoing credit crisis. On August 8, Wachovia said it would exit retail mortgage originations in 19 U.S. states, as it opts to refocus its mortgage banking operations in locations where it has a meaningful retail branch presence. Beyond construction loans, the bank also holds $122 billion in option ARMs, a substantial part of the bank’s $488.2 billion in total loans; no other U.S. bank has as much exposure to option ARMs in real-dollar terms. The North Carolina-based bank yanked its option ARM lending program earlier in the year, as mounting losses and continuing home price declines made the product unprofitable. Disclosure: The author held various put option contracts on WB when this story was published; indirect holdings may exist via mutual fund investments, as well. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

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