OLYMPIC BOULEVARD Interested homebuy-ers with bad credit have lost another ally.
Santa Monica-based Fremont General Corporation announced last Friday that it will be selling the sub-prime residential real estate lending portion of the company, hiring Credit Suisse Securities to serve as its financial advisor regarding the sale of the business.
On Wednesday, the Federal Deposit Insurance Corporation announced it had issued a cease-and-desist order against Fremont Investment & Loan and its parent company, Fremont General Corporation and Fremont General Credit Corporation.
The company was lacking proper risk management policies regarding its sub-prime residential and commercial real estate loans, according to the federal agency. Fremont Investments & Loan was operating its business and providing mortgage loans to sub-prime borrowers in a way that increased the possibility that the borrower would fail on their end of the bargain, the order alleges.
Fremont General Corporation announced later on Wednesday that it was consenting to the terms in the order without admitting to the allegations.
Representatives from both Fremont General Corporation and Credit Suisse Securities declined to comment on the impending sale on Wednesday.
The company’s Board of Directors made its decision “in light of recent legislative and regulatory events, as well as changing competitive dynamics in the sub-prime market,” according to a release issued last Friday.
Fremont is a financial services holding company, providing loans in 47 states in the fourth quarter of 2006.
The cease-and-desist order requires that the company create a five-year strategic plan and correct its lending practices by adopting a new sub-prime lending policy within 90 days. The order also requires that it analyzes a borrower’s ability to repay loans at a fully indexed rate when underwriting future sub-prime loans.
“Our concern has always been that banks make loans that borrowers are able to repay,” said FDIC Chairwoman Sheila C. Bair. “We believe that the agreement with Fremont addresses this basic concern.”
Originally published in the Santa Monica Daily Press print edition on March 8, 2007. Read the original PDF.