Freedom Lifts Fremont

Fremont General (FMT Quote) surged 33% Monday after the subprime lender said it signed a letter of intent to sell its residential real estate business.

The Santa Monica, Calif., company didn't disclose the name of the would-be buyer, but said it's in exclusive talks to sell that operation. Fremont last month consented to a cease-and-desist order from the Federal Deposit Insurance Corporation obliging Fremont to get out of the business of making home loans to buyers with poor credit histories.

Fremont said the unnamed counterparty has agreed to buy $2.9 billion worth of loans, representing a majority of Fremont's subprime residential real estate loans. Fremont said it will take a pretax loss of $100 million on the sale, reflecting that the transacation took place "at a discount that reflects the current conditions in the subprime mortgage market."

Last month, Fremont sold $4 billion of subprime loans also to an undisclosed buyer. It took a pretax loss of $140 million on that sale. Earlier this month, Grant Thornton resigned as Fremont's independent auditor.

Fremont said Monday it has approximately $1.5 billion in cash and short-term investments.

News comes as other lenders struggle to survive from the collapse of the subprime lending bubble. New Century Financial (NEWC Quote) filed for bankruptcy after being cut off by its banks, and NovaStar Financial(NFI Quote) and Accredited Home Lenders(LEND Quote) have been seeking financing and considering strategic alternatives.