Fremont selling off sub-prime loans

Fremont selling off sub-prime loans

	Published : Wed, 21 Mar 2007 19:06 By : Agencies Print this Story

LOS ANGELES (AP) - Fremont General Corp. said Wednesday it had agreed to sell $4 billion in sub-prime real estate loans at a pretax loss of $140 million.

The Santa Monica-based company, which previously disclosed it was trying to sell its residential loan business, said it had already received $950 million in cash from a sale to an undisclosed buyer or buyers and expects the remaining transactions to be completed in the next several weeks.

Sub-prime lenders make expensive loans to people with low credit scores. Lenders industrywide have been selling their sub-prime assets amid a surge in mortgage defaults in the sector.

Fremont said it continues to operate its profitable commercial real estate lending and residential loan servicing businesses, as well as its retail banking division.

Earlier this week, the company said it had notified a substantial portion of the 2,400 employees in its sub-prime lending unit that they will lose their jobs by May 18.

Fremont previously said it was talking to potential buyers of its residential loan business but intended to leave the sector completely whether or not it found a buyer.

The company did not say whether the $4 billion in loans is its complete portfolio. In its third-quarter financial report, the company said it had $5.5 billion in residential loans on its books available for sale to third parties.

The company has likely been making new loans, although at a slower pace than in the past because of recently tightened credit requirements, said Theodore P. Kovaleff, senior bank and thrift analyst at Sky Capital LLC.

But Wednesday's announcement raises the question of whether the best loans were sold, perhaps leaving the company with the riskiest loans yet to sell, he said.

Kovaleff estimates the company sold the loans for about 96 cents on the dollar, which is a better rate than another sub-prime lender, Accredited Home Lenders Holding Co., recently got for its loans.

Last Friday, Accredited announced plans to sell $2.7 billion in loans at a discount to satisfy margin calls from lenders and stave off a liquidity crisis caused by rising defaults on mortgages given to high-risk borrowers.

Kovaleff said the sale still leaves Fremont with a profitable line of business and good prospects for the future.

'This essentially validates my contention that Fremont is not going to go the way of New Century,' he said.

Sub-prime lender New Century Financial Corp. is believed to be close to bankruptcy.

Shares of Fremont jumped $1.07, or 12.6 percent, to $9.90 in afternoon trading on the New York Stock Exchange.