March 21 (Bloomberg) -- Fremont General Corp., one of two companies ordered to stop offering subprime mortgages, will sell $4 billion of loans to stem losses from homeowner defaults.

The sale will result in a pretax loss of $140 million, Santa Monica, California-based Fremont said in a statement. The buyer wasn't identified. The loss shows the loans will be sold for 96 cents on the dollar, more than most analysts expected, said Theodore Kovaleff at Sky Capital LLC in New York.

Fremont shares jumped 16 percent, the fifth gain in six trading days, on speculation it may escape the fate of a dozen subprime lenders that failed this year. The industry is beginning to attract capital from hedge funds seeking to buy mortgage assets at distressed prices. Citadel Investment Group LLC said today it owns a 4.5 percent stake in Accredited Home Lenders Holding Co., which disclosed a $200 million loan commitment yesterday from Farallon Capital Management LLC.

``If subprime is going to crater the way the naysayers say, then this minimizes their exposure,'' said Kovaleff of Fremont's sale. ``I thought they would only get 95 cents on the dollar.'' He rates the stock a ``buy'' and owns more than 10,000 shares.

Fremont said it's already received $950 million from a first installment of the loan sale. Accredited announced last week the sale of $2.7 billion in subprime loans at a discount that some analysts estimated was more than 5 percent.

Shares of Fremont rose $1.41 to $10.19 at 4:02 p.m. in New York Stock Exchange composite trading. They're still down by more than a third this year as the Federal Deposit Insurance Corp.'s shutdown order earlier this month leads to mounting losses at the lending unit. Accredited shares gained 11 percent.

Liquidity

``The liquidity of those loans was better than some market participants thought,'' said Sean Jones, an analyst at Moody's Investors Service, referring to the Fremont sale.

Fremont, which also operates retail banking and commercial- lending businesses, shut its home-lending operations March 5, put employees on paid leave and hired Credit Suisse Group to sell the mortgage unit. Rival lender New Century Financial Corp. has been told by regulators in more than a dozen states to stop taking applications.

As of Sept. 30, the last date for which financial statements are available, Fremont had $5.54 billion of loans held for sale. Kovaleff said today's sale may leave the company with more than $1 billion of subprime loans.

``We still don't know how much is left, and we don't know if this is the best or worst of what they've got,'' he said. ``But now there's an institution that has maybe $1 billion left, and the exposure, when you're dealing with worst-case scenario, is far less.''

Bank Deposits

Fremont funds most of its loans with bank deposits and borrowings from the Federal Home Loan Bank of San Francisco. That sets the company apart from rivals like Accredited and New Century that depend on credit lines from Wall Street firms such as Goldman Sachs Group Inc., Morgan Stanley and Merrill Lynch & Co.

One of the risks facing Fremont was that retail banking customers would pull their deposits after reading headlines about the FDIC cease-and-desist order, which cited the company for violating federal laws.

``It was one of the concerns that we had, but the deposits have stayed,'' Jones said.

To contact the reporter on this story: Bradley Keoun in New York at bkeoun@bloomberg.net

Last Updated: March 21, 2007 16:18 EDT