Fremont in deal to $4 billion in sub-prime loans
Fremont General Corp., which shut down its sub-prime mortgage lending this month under pressure from federal regulators, said Wednesday that it had agreed to sell about $4 billion of these loans.
The Santa Monica lender, which operates through a bank subsidiary, Fremont Investment & Loan, said it already had received $950 million in cash from its first loan sale and expected to complete the rest of the sales over the next several weeks.
The buyers weren’t disclosed, but hedge funds and other investors in distressed properties have expressed strong interest in loans from sub-prime lenders that have been hammered by recent defaults, said Stan Ross, chairman of USC’s Lusk Center for Real Estate.
Hedge fund Citadel Investment Group said Wednesday that it had purchased a 4.5% stake in Accredited Home Lenders Holding Co., an embattled San Diego-based sub-prime lender. The news came a day after Accredited said it had lined up a $200-million term loan from Farallon Capital Management, another hedge fund. Accredited shares rose by $1.19 to $11.96, a gain of 11%.
Fremont said it expected to lose about $140 million on the $4-billion loan sale, less than 4 cents on the dollar -- a better outcome than many investors had feared. Its stock jumped by $1.41, or 16%, to $10.19.
Fremont, which also makes commercial real estate loans, quit making sub-prime home loans and put that business up for sale early this month after the Federal Deposit Insurance Corp. ordered it to install new management and cut back on the risky lending.
Fremont said in its third-quarter earnings report that it had a $5.5-billion loan portfolio on Sept. 30. It didn’t disclose on Wednesday whether the loans to be sold were representative of all its mortgages or whether it kept the best or worst loans for itself.
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