Shares of mortgage lender Fremont General gained nearly 26% yesterday to $8.53 on news the company is in talks with several potential buyers of its subprime unit. The shares slipped $0.60 to $7.93 in AH trading when management clarified that a transaction might not occur. Fremont was part of an overall rally in the mortgage sector yesterday that was precipitated in part by a report by the Mortgage Bankers Association that refinancing applications rose 15% last week, considered by analysts to be a reflection of the drop in interest rates that accompanied last Tuesday's market selloff. Applications are up 38.4% from a year ago. Fremont's shares nosedived 32% on Monday when it disclosed that it is leaving the subprime business and has desisted from certain lending practices on orders of the FDIC. Fremont is projecting a Q4 loss from continuing operations, due in part to higher provisions for repurchases of bad loans. In related news, Citadel Investment Group has beaten out Credit Suisse Group to buy bankrupt ResMae Mortgage Corp. and its loan portfolio for about $180 million.
Sources: Reuters (I, II), Bloomberg, Business Week, TheStreet.com
Commentary: Subprime Lenders Stage Mini-Comeback • Crisis in the Subprime Market: The First Step is Admitting You Have a Problem • Subprime Lender Stocks Plummet: Easy Money Meltdown
Stocks to watch: Fremont General Corp. (FMT). Competitors: NovaStar Financial Inc. (NFI), Countrywide Financial Corp. (CFC), New Century Financial Corp. (NEW)
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