June 23 (Bloomberg) -- CapitalSource Inc., the lender that bought the banking business of bankrupt Fremont General Corp., has sold residential mortgage-backed assets at a loss of $36.1 million this quarter.

CapitalSource has sold $1.5 billion in residential mortgage investments since March 31, the Chevy Chase, Maryland-based lender said in a regulatory filing today.

Chief Executive Officer John Delaney is adding banks to gather deposits for funding loans as investors shun mortgage- backed assets. More than 100 lenders have closed, halted operations or sold themselves amid the worst U.S. housing crisis since the Great Depression.

``We believe that deposit funding will lower our cost of funds and reduce our reliance on the more volatile capital markets,'' CapitalSource said in the filing.

The collapse of the subprime mortgage market boosted foreclosures and forced Fremont to stop making loans last year. CapitalSource earlier this month said it would sell 30 million shares and is ``well positioned to seize opportunities'' after receiving regulatory approval to buy Fremont's retail bank. The share sale is valued at about $440 million.

CapitalSource recorded a $20.6 million loss selling mortgage-backed securities in the first quarter, when the lender posted net income of $6.8 million, or 3 cents a share. The lender tried to purchase TierOne Corp. until the Lincoln, Nebraska-based bank terminated an agreement in March.

CapitalSource has declined 47 percent in the past 12 months in New York Stock Exchange composite trading.

To contact the reporter on this story: Linda Shen in New York at lshen21@bloomberg.net

Last Updated: June 23, 2008 08:55 EDT