PHH Corporation said Wednesday that a planned $1.8 billion sale fell apart as a key party in the deal failed to find adequate debt financing to fund the deal. PHH’s mortgage operations were to be bought by Pearl Mortgage Acquisition 2 LLC, an affiliate of The Blackstone Group, while General Electric Capital Corp. planned to keep the company’s vehicle-leasing unit. PHH is the nation’s 11th largest mortgage servicer, according to numerous data sources. The company had first warned that the deal was in trouble in mid-September. In a press statement, PHH said that the Blackstone afflilate failed to obtain debt financing needed to purchase the company’s mortgage assets from GE as part of the multi-party deal. As a result, PHH said it has requested a $50 million termination fee from the private equity investor. Well, that didn’t take long — we’re barely into 2008, and it’s looking an awful lot like 2007 already. The Wall Street Journal provides some additional insight:

A person familiar with the deal says that because demand for mortgage-related debt is so anemic, the financing banks would have faced paper losses of as much as $500 million or more had the deal gone through. In early December, people familiar with the matter said, the banks pulled the plug altogether. A person in the bankers’ camp says that is because Blackstone failed to provide documents J.P. Morgan required for the financing. This person also questioned whether Blackstone really wanted to complete the deal, given disarray in the mortgage industry.