Fremont General Corp. (NYSE: FMT), a company that operates primarily through banking company Fremont Investment & Loan, on Thursday reported $18.3 million in income for the third quarter as it continued to sell off residential real estate loans and completed the sale of its commercial lending business.
The company has sold off $8.75 billion of residential real estate loans at a loss of $881.1 million, net of valuation reserves, during the first nine months of the year ended Sept. 30, the company reported.
Also, Fremont Investment & Loan sold its entire $6.27 billion commercial real estate loan portfolio to iStar, receiving $1.89 billion in cash and $4.21 billion participation interest for the sold portfolio — that deal was completed July 2.
The company reported $32.2 million in income from continuing operations during the third quarter as a result of the sale to iStar.
Fremont Investment and several other companies and individuals are named in a lawsuit filed this week in California’s Contra Costa County Superior Court that charges that the company “aggressively marketed and promoted … risky and expensive residential loan products without regard for the ability of the borrowers to afford the payments even in the short term, much less the increased monthly payments due at the expiration of the teaser period.”
Also, the lawsuit states that the Federal Deposit Insurance Corp. ordered Fremont to take corrective action, including “efforts to restructure loans in distress,” but instead “went out of the subprime lending business entirely and proceeded to sell (or try to sell) its remaining holdings of subprime residential mortgages into the secondary markets.”
The company did not immediately offer a comment Thursday about the lawsuit.
Fremont General had announced on March 2 that it would sell its subprime subsidiary or exit the subprime mortgage business, and on March 7 the FDIC issued a cease and desist order alleging that Fremont Investment & Loan “was marketing and extending subprime mortgage loans in a way that substantially increased the likelihood of borrower default or other loss to the bank.”
Fremont Investment & Loan also was hit in July with a lawsuit filed by the National Association for the Advancement of Colored People. The lawsuit alleges that a group of lenders steered home buyers to higher-cost subprime loans because of their race.
During the third quarter Fremont General Corp. reported that it sold off $243.9 million of residential real estate loans, realizing a loss of $4.1 million.
The company had $995.9 million in residential real estate loans held for sale as of Sept. 30, with a valuation reserve that totaled $484.3 million, according to an earnings report.
The company’s stock closed the day at $2.66 per share on Thursday, up 84 cents compared to the previous day’s closing price.