Fremont General Corp., the former sub-prime lending giant that regulators forced out of the mortgage business last year, said Friday that it probably would seek bankruptcy protection to hasten its liquidation of assets.
A Chapter 11 bankruptcy would enable Fremont General, the holding company for Brea-based industrial bank Fremont Investment & Loan, to sell its deposits, branches and mortgage-servicing rights without shareholder approval. Fremont General said it could not compile the financial data required for a proxy to solicit shareholders "in any type of a realistic time frame."
In a statement, Fremont General said its board would wait to make the bankruptcy filing until regulators approved the sale of its retail business to commercial lender CapitalSource Inc. of Chevy Chase, Md. The retail operation includes 22 Fremont Investment & Loan offices in California and $5.6 billion in deposits.
When the deal was announced last month, CapitalSource officials said the branches would stay open with many of the same employees and no changes in interest rates or other terms of existing certificates of deposit or other accounts.
Fremont said Thursday that it had agreed to sell its remaining mortgage-servicing rights -- bill collection rights for $12.2 billion in home loans -- to Litton Loan Servicing, an affiliate of Goldman Sachs & Co. The terms of the deal were not disclosed.
With that agreement, the company has now contracted to sell substantially all of the assets of Fremont Investment & Loan, it said.
Fremont said it would wind down its remaining loan-servicing operation, which is based in Ontario. The number of employees remaining there was not disclosed.
After the assets sales close, Fremont Investment & Loan would terminate its deposit insurance agreement with the Federal Deposit Insurance Corp. and surrender its state banking charter to the California Department of Financial Institutions, ending its supervision by bank regulators.
The holding company would retain many liabilities, including damage claims by borrowers and shareholders who contend that they were misled about the terms of their loans and the risks the company was running.
Through Fremont Investment & Loan, Fremont General had been the nation's fifth-largest provider of high-risk sub-prime mortgages before regulators stepped in, saying in March 2007 that the bank was making too many loans that borrowers couldn't afford.
Fremont General stock, which was delisted recently from the New York Stock Exchange, lost 7 cents to close at 10.5 cents a share in over-the-counter trading Friday.