2nd UPDATE: FDIC Orders Fremont’s Bank To Recapitalize >FMT

Mar.28, 2008 in Market Outlook

Last Update: 3/28/2008 1:21:55 PM

(ADDS more background in final paragraphs)

DOW JONES NEWSWIRES

Cash-strapped mortgage lender Fremont General Corp. (FMT) said California and the
Federal Deposit Insurance Corp. have ordered it to recapitalize the books of its
investment and loan bank within two months or sell the unit.

Shares were trading down 10% at 55 cents during early afternoon trading.

The directive also restricts the interest rates that Fremont Investment & Loan
may pay on deposits and states the bank is not permitted to make any capital,
bonus, or compensation pay to the company or its officers. Further transactions
between the bank and its affiliates also are restricted.

The directive will remain in effect until the bank is “adequately” capitalized on
average for four consecutive calendar quarters.

Fremont had been a major subprime home lender until it agreed to a
cease-and-desist order with the FDIC in early 2007. The agency cited weak risk
management related to subprime lending and commercial real estate loans for the
order. Soon thereafter, Fremont sold or entered negotiations to sell most of its
subprime residential real-estate business and assets.

Fremont has been lacking cash the past year as the FDIC order prevented it from
getting dividends from Fremont Industrial & Loan. In November, Fremont underwent
a management change after a group walked away from a proposal to invest in the
company.

Three weeks ago, Fremont ago was hit with default notices from two affiliated
buyers of $3.15 billion in residential subprime mortgages a year ago. The move
could force the company to buy back some of the loans - a scenario that threatens
its future viability.

Fremont has been weighing its options, and last week said it would postpone
making an interest payment on $169 million in senior notes as it negotiated a
debt restructuring with the owner of a majority of the notes.

Two days later, Fremont Investment & Loan agreed to sell mortgage-servicing
rights of loans in some securitization trusts to Carrington Mortgage Services
LLC. Terms were not disclosed but the mortgages have a total remaining principal
balance of about $1.9 billion.

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