stock slid Thursday morning after the lender published the details of its cease-and-desist order.
The order from the Federal Deposit Insurance Corporation requires the Santa Monica, Calif.-based lender to "make a variety of changes in its subprime residential loan origination business and also calls for certain changes in its commercial real estate lending business," Fremont says.
Under the terms, Fremont can no longer operate with a management team whose "policies and practices are detrimental" to the company and without effective risk-management policies regarding its brokered subprime mortgage lending and commercial real estate construction lending businesses, according to a filing with the
Securities and Exchange Commission
In addition, Fremont cannot operate with "inadequate" underwriting criteria and without accurate and proper documentation regarding its allowance for loan losses, nor can it engage in "unsatisfactory lending practices," among other things.
Shares fell 4% early Thursday. Fremont shares have been whipsawed by news events this week.
The company said late Friday that it was looking to sell its subprime business, after the FDIC told it the cease-and-desist order was on the way. That development, along with news of an accounting investigation at subprime rival
New Century Financial
, sent Fremont shares plummeting Monday.
But shares soared 26% Wednesday, recovering much of Monday's loss, after
reported that Fremont was in talks with as many as six potential buyers for the subprime business. Fremont later cautioned there was no assurance a deal would be reached.
Shares of several subprime companies have plummeted in recent weeks as delinquencies and defaults have picked up among homebuyers with weak credit histories. Investors have been flocking to the sidelines after worrying that some lenders might go under if their banks cut off funding.
On Tuesday, ResMae Mortgage said hedge fund Citadel was purchasing assets from the firm for $22 million. The Brea, Calif., subprime lender filed for bankruptcy last month.