Accredited finds a fire-sale buyer for its discounted mortgage portfolio, while Fremont arranges key financing
The mortgage lenders Fremont General Corp. (FMT) and Accredited Home Lenders Holding Co. (LEND) suggested on March 16 that they've been making headway in their battles to obtain financing. Investors, who have fled the high-risk mortgage industry during recent weeks, bid up both company's shares in response.
Since Fremont General announced March 2 that it will exit subprime real estate lending and is in talks to sell the business, the company says it has had discussions with "various parties" about the matter. Such discussions continue to advance, California-based Fremont said March 16.
Meanwhile Credit Suisse (CS), which Fremont General had hired for advice on how to cope with its financial difficulties, has increased to $1 billion its committed line of credit to Fremont Investment & Loan, the industrial bank through which Fremont General does its real estate lending. Fremont says it has also secured "various proposals" for additional credit if the company should need more funding to supplement its current cash position of $1.3 billion.
Like Fremont General, Accredited executives have been struggling to raise cash even as their potential investors lose confidence. But the San Diego company said March 16 that it has found a buyer for nearly its entire $2.7 billion loan portfolio -- albeit at a substantial discount. Even at bargain-basement prices, the loans sale will help the company meet margin calls from lenders, resulting in a pre-tax loss of around $150 million on its balance sheet. Accredited hopes the cash raised from the sale will help it continue in its effort to find solutions to its financing troubles.
Both companies are late on their financial filings. Fremont General was supposed to file its financial results for the year ended Dec. 31 on March 16, but the company is missing that deadline as it figures out how the recent turmoil in the subprime mortgage market has affected its finances. Accredited Home Lenders is also missing the March 16 deadline for its annual report, as executives try to figure out how to best evaluate things like its acquisition of Aames Investment Corp. in the fourth quarter of 2006.
Accredited shares surged 25% to $11.78 per share in early afternoon trading on the Nasdaq March 16, after having shed 23.4% of their value so far this year. Fremont General rose 16% to $8.62 per share on the New York Stock Exchange, after having lost more than 67% of their value.
The news hits as mortgage lenders and market players fight to calm investors, who have been barraged with news about the industry in recent months that has ranged from major losses to bankruptcy among subprime specialists like New Century Financial and NovaStar Financial (NFI). On Mar. 13 the Mortgage Bankers Assn. reported a record percentage of mortgages entering foreclosure in the fourth quarter-news that sent the Standard & Poor's 500-stock index tumbling 2% (see BusinessWeek.com, 03/15/2007, "Making Sense of the Mortgage Mess", http://www.businessweek.com/investor/content/mar2007/pi20070315_447639.htm?chan=top+news_top+news+index_top+story.)