Troubled California Mortgage Lender Finds Buyer

Fremont General Corp. said it found a buyer for most of its California home loan business, suggesting the struggling lender may have found a way out of the troubled subprime (bad credit mortgage) industry.

Its stock surged 28 percent on the news.

The Santa Monica-based mortgage lender said that it has signed a letter of intent and is negotiating a sale of most of its residential real estate business.

This impending deal includes a segment that collects California mortgage payments and part of the company’s overall mortgage lending platform.

Fremont General last month said it hired Credit Suisse Securities to help sell the business that facilitates loans for home buyers with riskier, “subprime” credit.

The subprime market has fallen into disarray as borrowers missed payments more frequently, housing prices cooled and investors soured on mortgage-backed debt.

Even if Fremont General succeeds in the sale, its commercial real estate business would remain. That segment, which as recently as a month ago was profitable, lends money to real estate developers to build or renovate condominiums, hotels and retail outlets.

The segment’s $6.42 billion commercial mortgage loan portfolio has its highest concentrations in California, New York and Florida.

The subprime segment’s potential buyer - which one analyst said was likely Fortress Investment Group LLC - has already agreed to buy $2.9 billion of Fremont General’s subprime, or bad credit home loans.

Fremont General said it had to sell the home loans at a discount because of the current rocky conditions in the subprime industry.

Sky Capital analyst Theodore P. Kovaleff said the $100 million loss Fremont is about to record because of the discount implies the lender is selling the loans at 96.5 cents on the dollar, which is “pretty good.”

SOURCE: The Press-Enterprise